Ahead of Bed Bath & Beyond’s first quarter earnings report, Bank of America Securities cut its Q1 EPS estimate for the beleaguered home goods retailer.
“We’re cutting our F1Q EPS estimate to $(1.41) on -20% comps, below consensus of $(1.31) on -18% comps per Visible Alpha. On the F4Q call on 4/13, mgmt. cited QTD comps running -20%,” the report said. “We don’t believe comps have since improved.”
The report cited multiple factors, such as continued elevated promotions including up to half off bedding and furniture, as well as delayed or cancelled store remodels. Bank of America analysts said they anticipate Bed Bath & Beyond will close more stores and halt BuyBuyBaby store openings.
“From our channel checks and store visits, we believe that BBBY is trying to quickly trim expenses to align costs with comp declines,” the report said. “Labor hours have been meaningfully cut, utilities (e.g. air conditioning) have been scaled back, and store opening hours will be reduced starting in July (e.g. open at 11 a.m. instead of 10 a.m.).”
The report also predicted a potential sale of the BuyBuyBaby brand is less likely. Activist investors RC Ventures advocated for selling the brand earlier this year, but Bank of America analysts said, “we continue to see challenges to completing a deal given BBBY’s worsening financial position and increasing high-yield spreads.”
Analysts pointed to the departure of two key financial executives for Bed Bath & Beyond as another sign of trouble. The company’s chief accounting officer John Barresi resigned in May, and Heather Plutino, senior vice president of FP&A and commercial finance also left the company for the chief financial officer position at apparel retailer Citi Trends.
“BBBY’s accounting practices have included restructuring adjustments that added back ~3ppt. on average to operating margin over the past seven quarters, helping to offset an ~8ppt. decline from F4Q19 to F4Q21,” it said.
Bank of America Securities also estimates less liquidity for Bed Bath & Beyond going forward. At the end of the fourth quarter of 2021, the retailer had $439 million in cash and $900 million available on its revolver for a total liquidity of $1.3 billion. Over the next two years, analysts estimate the company will burn through $900 million, leaving total liquidity around $439 million at the end of fiscal year 2023.
With a softening of demand for home goods, Bank of America Securities analysts predict things will get worse before they get better for Bed Bath & Beyond.
“BBBY is in the midst of a turnaround led by a strong management team,” the report said. “However, the company has been underperforming the industry and we think consensus estimates may be optimistic. We’re also cautious that stay-at-home spending could continue to decelerate and a more promotional industry environment could return.”