Bed Bath & Beyond (BBBY) 4Q15 Preview, Shows Moderate Downside Risk - Wedbush

Wedbush analyst, Seth Basham, sees shifting industry dynamics continuing to suppress earnings growth at Bed Bath & Beyond (NASDAQ: BBBY). BBBY’s earnings report on Wednesday, April 6 AMC comes amidst a choppy sales and more promotional environment in home furnishings retail, suggesting slightly more downside risk than upside risk this quarter despite lowered guidance in early January when the company had already recorded 40%+ of the quarter’s sales. No change to Neutral rating or $46 PT.

BBBY recognizes the paradigm shift in home furnishings retail, with casual consumers increasingly shopping online and focusing on price, but faces challenges to adapt its business model. The company is heavily investing in omnichannel capabilities, expanding online product offerings and more recently is testing an even lower $25 minimum spend threshold for free shipping online orders. Cash flows are still strong and the analyst believes these are the right moves, but they will continue to weigh on profitability in 2016 and may be reflected in more conservative guidance than in the past two years. Until BBBY demonstrates renewed profit growth, we do not expect relief for BBBY shares.

The analyst believes BBBY may have de-risked the quarter with lower guidance following the company’s 3Q15 comp and earnings miss, but he sees little reason for upside. He estimates 4Q15 EPS of $1.78. This is below consensus of $1.81, and at the low end of the company’s guidance of $1.72-$1.86. However, the bigger issue may be margin risk than top line risk. The company is competing in an intense promotional environment and the analyst found an increase in clearance sales and Manufacturer’s Savings Events in the quarter. Increased coupon redemption could drive gross margin softness while increased advertising and wage pressure may impact SG&A.

For an analyst ratings summary and ratings history on Bed Bath & Beyond click here. For more ratings news on Bed Bath & Beyond click here.

Shares of Bed Bath & Beyond closed at $49.53 yesterday.

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