Bed Bath & Beyond is showing some improvement, but with sales still down 5.1 percent, more work is needed to complete a turnaround.
In a Nutshell: Third-quarter results were decent, but the fourth quarter will be impacted by Covid-related headwinds.
“The consistent execution of our growth strategy is unlocking improved financial performance and we delivered a second consecutive quarter of comparable sales and profit growth. Additionally, we drove strong cash flow generation and balance sheet improvements in the third quarter and have re-initiated capital return to shareholders, ” Mark Tritton, BBB’s president and CEO, said.
The sellers of home goods and textiles said it expects to continue to drive sales growth from its digital channels, with sales from stores expected to be unfavorably impacted by declines in store traffic trends.
Jefferies analyst Jonathan Matuszewski has a “Hold” rating on shares of BBB. While the company touted the second consecutive quarter of comparable sales gains, the analyst said the positive comps represented a deceleration from the second quarter. He also noted that fourth-quarter guidance showed comparable sales in line with last year, suggesting a deceleration from holiday sales trends, given that the consensus estimate was up 3 percent.
The company plans to increase its BuyBuy Baby banner sales by 50 percent over three years. It also plans to grow private label from the current 10 percent penetration to 30 percent over the same three year period. Matuszewski isn’t so sure consumers will care. “The upcoming launch of 10 new owned brands over the next 18 months presents opportunity, but this is a strategy that has been pursued in the past with little impact,” he said.
Net Sales: For the third quarter ended Nov. 30, net sales fell 5.1 percent to $2.62 billion from $2.76 billion. The company attributed the decline in part to its portfolio transformation that includes the planned divestitures of its noncore banners and store closing activity.
Although comparable sales grew for the second consecutive quarter, that growth was fueled by a rise in digital sales. The company reported a 5 percent comparable sales growth at its core BBB banner, with 2 percent overall in comp sales growth. Digital sales grew 94 percent at the core BBB banner, and were up 77 percent overall. In addition to its core BBB brand, the company also operates nameplates Cost Plus World Market, BuyBuy Baby, Harmon Face Values and Decorist.
BBB categories that did well in the quarter include home organization, kitchen food prep, bedding, bath and indoor décor, combining for 11 percent comp sales growth. BBB said it has been prioritizing merchandising and marketing investments in these categories to strengthen its authority in the home space. In addition, the BBB banner achieved market share gains in its destination bed category.
The company also said it gained 2.2 million new online customers at the core BBB banner during the third quarter, with 7 million new online customers year-to-date.
The company said it is saw strength in December, the first month of its fiscal fourth quarter.
Earnings: The company reported a wider loss that grew to $75.4 million, or 61 cents a diluted share, from a net loss of $38.6 million, or 31 cents, in the year-ago quarter. Excluding one-time items, adjusted diluted earnings per share were 8 cents.
The company didn’t provide any fourth quarter guidance, citing “significant COVID-related headwinds including heavy store traffic declines, major shipping constraints and higher freight costs.” BBB said it is operating on the basis that its stores will be able to remain open and not be required to close due to government restrictions to curb the spread of the coronavirus.
“Net sales in the fiscal 2020 fourth quarter are estimated to be lower by a double-digit percentage range, as a direct result of adjustments from transforming the Company’s overall portfolio, including non-core banner divestitures and store closing activity related to its network optimization initiative,” the company said.
CEO’s Take: “We knew this holiday season would be like no other and we took several steps in advance to help our customers shop safely and with ease, including over 100 meaningful improvements to our digital-first, omni-always customer experience and enhancements to our contactless new Store and Curbside Pickup and Same Day Delivery service offerings. We are delighted by the strong customer response to these efforts. We are seeing a deepening level of recognition and engagement from our customers, including the more than 2 million new online customers in the third quarter. We are also seeing favorable market share trends in several of our key destination categories, including positive share gains over the past two months within the Bed category,” Tritton said.