The Ratings Game: Bed Bath & Beyond stock sinks more than 24% after earnings miss but analysts see opportunity

The Ratings Game: Bed Bath & Beyond stock sinks more than 24% after earnings miss but analysts see opportunity

10 Jul    Finance News

Bed Bath & Beyond Inc. stock took a 24.5% nosedive in Thursday trading after COVID-19-related closures drove wider-than-expected losses and steep sales declines, but analysts are upbeat about the path forward for the troubled home retailer.

Bed Bath & Beyond BBBY, +4.26% reported a fiscal first quarter adjusted loss of $1.96 per share and a 49% sales decline to $1.31 billion. The FactSet consensus was for a loss of $1.27 per share and sales of $1.39 billion.

June sales fell just 7%, according to Gustavo Arnal, Bed Bath & Beyond’s chief financial officer, who spoke on the Thursday earnings call. And year-over-year digital growth was 80%.

Nearly all of the company’s stores have reopened but about 200 store closures are planned in the next couple of years.

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“This bounce back is much sharper than reported by other leading department stores that have recently reopened their stores and speaks to the strength of Bed Bath and Beyond’s brand and a spending shift to the home goods category,” wrote Wedbush analysts led by Seth Basham.

The company also talked up its liquidity, ending the quarter with $1.2 billion in cash and investments. Bed Bath & Beyond announced a new $850 million three-year secured asset-based revolving credit facility on June 22.

“With improving operating performance, inventory reduction opportunities remaining, potential asset sales outstanding, (including the litigious Personalization Mall sale, the potential to sale of Christmas Tree Shop and Cost Plus, as well as what we estimate to be ~$200m in additional real-estate, we remain comfortable with Bed Bath and Beyond’s liquidity position,” analysts said.

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Wedbush rates Bed Bath & Beyond stock outperform and raised its price target to $14 from $12.

Bank of America highlighted the annualized savings expectation of $250 million to $350 million from the plan to close 200 stores.

“This is something the market has long anticipated and with a plan to eliminate overlapping stores and online sales growing strongly, this on its own should provide a strong comp and earnings tailwind,” analysts led by Curtis Nagle wrote.

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Bank of America rates Bed Bath & Beyond stock buy with a $16 price objective, up from $14.50.

Not all analysts were as positive. UBS focused on the boost the retailer got from stimulus checks and the demand in the home category, which rose as lockdowns forced more people indoors.

“This will probably fade,” wrote analysts led by Michael Lasser. “Thus, we think it’s best to assume that Bed Bath and Beyond’s comp trends remain under pressure for at least the intermediate-term.”

UBS rates Bed Bath and Beyond stock neutral with a $10 price target, up from $5.

Raymond James notes the sales at Buybuy Baby, which Bed Bath & Beyond said were 20% of the first quarter, compared with about 10% last year. By analyst calculations, the chain would total about $1.1 billion in annual revenue.

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“In our history with the company, we believe this is the first time they have disclosed revenue figures on any individual concept,” analysts said.

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Raymond James rates Bed Bath & Beyond strong buy with a target price of $12, down from $13.

Bed Bath & Beyond stock has fallen by more than half (52.6%) for the year to date while the S&P 500 index SPX, +1.04% is down 1.4% for the period.

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