Bed Bath & Beyond Inc. (BBBY) on Q1 2021 Results - Earnings Call Transcript
Operator: Welcome to Bed Bath & Beyond's Fiscal 2021 First Quarter Earnings Conference Call. My name is Sylvia, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I would now turn the call over to Susie Kim. Susie, you may begin. Susie Kim: Thank you, and good morning, everyone. Welcome to our fiscal 2021 first quarter earnings call. On the call with us today are Mark Tritton, our President and Chief Executive Officer; and Gustavo Arnal, our Chief Financial Officer. Mark Tritton: Thank you, Susie, and good morning, everyone. Our first quarter results demonstrate continued momentum in our transformation as we progress towards the goals we outlined, last quarter, and most importantly, at our Investor Day. 2021 marked the first year of our three-year transformation following the groundwork we laid in 2020, a year of historic and necessary change for this organization against the backdrop of unprecedented challenges due to COVID-19. We took bold steps to build a stronger foundation through talent and team, financial capital and strategy, which enabled us to begin changing the trajectory of our business last year. As our first quarter results prove, we continue to deliver profitable growth as we reestablish our authority in home, recapture market share, and unlock our group's potential. For Q1, we delivered our fourth consecutive quarter of comp sales growth, and achieved gross margin that exceeded our expectations. We continue to execute quarter-after-quarter, and we pleased to be raising our full-year guidance outlook today. Gustavo will discuss our financial performance and outlook in more detail shortly. In summary, we have started the new fiscal year in a position of strength, and are clearly on track to accomplish our 2021 goal as part of our Three-year growth plan. Gustavo Arnal: Thank you, Mark, and good morning, everyone. I'll provide additional perspective on our strong first quarter result, and also on our second quarter guidance and improved full-year outlook. Let me start by saying that our first quarter performance was better than our expectation on several levels as we deliver on our fourth consecutive quarter of growth. Core sales growth, of 73%, came in higher than our guidance of 65% to 70% growth. This was a stronger-than-expected recovery from our COVID-related store closures last year. Gross margin of 34.9% was also ahead of our 34% guidance, driven by strong Owned Brand penetration assortment and better channel mix. Given this positive start of the year, we're raising our full-year outlook for sales and EBITDA, and at the same time reintroducing guidance for adjusted EPS. Looking more specifically at our first quarter results, as a reminder, reported net sales continue to reflect the impact from non-core banner divestitures completed last year, as well as our ongoing store fleet optimization program. Total net sales were $1.95 billion. This represented 73% growth from core banners. Worth noting, we believe that while first quarter growth rates are not fully comparable due to last year's COVID closures, for transparency and analysts' modeling purposes, we estimate comparable sales growth of approximately 86%. This excludes an estimated 13% negative comp sales impact from our store fleet optimization program. This impact was more pronounced this quarter due to last year's lower COVID-impacted revenue base. Versus 2019, on a two-year stack basis, comparable sales grew 3% fueled by significant digital growth of 84%, and offsetting stores sales reductions of 20%. As Mark described, our digital first, omni-always strategy remains an important component of our performance. Our digital channel represented 38% of total net sales for the quarter, doubling versus the penetration rate in 2019, and creating a sustainable strength in our business. For consistency and comparability, our sales perspective by banner or category will be rooted in coordinate sales comparisons versus last year, and income sales on a two-year stack versus 2019. In our Bed Bath & Beyond banner, net sales increased 96% versus last year and delivered 3% comp growth on a two-year stack basis. Our key destination categories of Bed Bath, kitchen, indoor decor and home organization grew 100% versus last year recapturing strong market share and on a two-year stat comp basis sales grew 7%. Our buybuy BABY banner delivered another strong quarter versus last year growth exceeded 20%. Mark Tritton: Exceeding our plans for the first quarter is yet another positive step during the early stages about three year plan. We are proving that our strategy is clear and our ability to execute is strong by delivering on our transformation plan quarter-after-quarter. We continue to fortify our position as a digital first omni-always retailer. And I am confident that our team and our initiatives will enable us to become a more successful enterprise, benefiting all our stakeholders for years to come. This year, we'll not only mark up the 50th anniversary as a business, but also be an important inflection point in Bed Bath & Beyond's history. We are reinventing ourselves. There's no authority at home, and repositioning this iconic company to unlock our potential for a new future of sustainable growth and profitability. We'll now take your questions. Operator: Thank you. We'll now begin the question-and-answer session. And our first question comes from Peter Benedict from Baird. Peter Benedict: Hi, guys. Good morning. So, a couple of questions, first, look, lot of noise in the market here over the first quarter, but I'm just wondering if you could maybe expand a little bit on your share gains, how you're kind of thinking about that, how you're measuring that? It sounds like you think you've gained share in a number of these core categories. So, that's kind of my first question. I don't know, Mark, if you can maybe build off on that. Mark Tritton: Yes. Thanks, Peter. Good morning. We've been tracking our market share. Obviously we took a hit last year in the subsequent quarter because of the store closures. And so, we've been looking at not only how we can perform in an equivalent market, but what does the share gain ratio look like? And we see a couple of things there, Peter, it's preliminary. Clearly, we're not back to our 2019 levels of share, because we have less doors and we're operating as a leaner organization, but what we saw was that rebound was very, very strong, and actually exceeded that of a number of our competitors who were also closed at the same time. So, I was saying to you that as a specialty retailer in the home and baby space and health and wellness, we regained really strong share there that we're going to be building off quarter-by-quarter, and sequential growth by month as we've tracked it. Peter Benedict: Okay, thanks. Next question just on kind of inventory and how you're managing that kind of in-store versus online and in-stock levels, just kind of curious, I know you mentioned there's a new store replenishment process, I believe it's on tact. So, can you just talk about that, as you're kind of transforming the merchandise assortment in the stores, just any timeline or metrics around that would be helpful? Mark Tritton: Yes. We're really pleased with that progress here, Peter. I think prior to was implementing the full technology suite that's going to help us and enable us with the use of AI to manage your inventory at DC and store at digital level. We're seeing the curation of the merchandise first at store level, and then the exit of underperforming brands and labels to make way for a cleaner assortment punctuated by a brand. That's resulted in being in-stock at about 95%. And definitely even higher in some of our key items, which is one of our highest statistics in many years. So, in-stock levels are healthy. I think this is important to note, as we curate the assortment mix, as we noted, we're up for the quarter, but our inventory was down over $100 million or 6%. So, we're doing more sales on less inventory. We're getting that inventory faster to the customer than ever before. And this is prior to us implementing a full suite of inventory management and tracking systems and new supply chain. So, we see those being net benefits as we progress through the three-year plan, but the fundamentals what we've put in place is working well for us. Peter Benedict: Okay, great. And I guess maybe lastly, one for Gustavo, just on the free cash flow, negative $100 million this quarter, but just how are you thinking about that and cadence throughout the rest of the year? What's your kind of view on free cash flow for '21 based on the updated guidance? Maybe any of the puts and takes there would be helpful. Thanks so much. Gustavo Arnal: Sure, Peter. So, our free cash flow in the first quarter came in line with our expectations as we accelerated our capital investments in line with our three-year plan. Relative to the balance of the fiscal year, we're not guiding to specific free cash flow number, but I'll say that we are definitely planning for positive free cash flow. We have a strong plan in terms of EBITDA, a strong plan in terms of further inventory optimization, and we're fully funded in our restructuring cost and marketing spending. So, all of that will be sufficient to fund our $400 million of CapEx in the year. So, look for positive free cash flow as the year progresses. We typically see the first quarter slower than the balance of the quarter's seasonality. So, we're feeling good about that. Operator: Our next question comes from Steven Forbes from Guggenheim Securities. Steven Forbes: Good morning. Maybe Mark, just a follow-up on the Peter's question about market share, curious if you could provide maybe a brief overview on how you view the company's performance right across these top five destination categories. What I mean by that is, as we look at what you're trying to tell us here in the exhibits you've been providing, right, and all the data you've been providing, what is the big takeaway, right, like what are you really trying to tell us about share? What gives you confidence that share gains should build? How are the legacy customers engaging with these categories versus the new customers that you acquired during COVID? Just any sort of context, that helps us increase our own conviction, right, that the business is positioned to return to share capture? Mark Tritton: Yes, it's great question, Steve. I think what we see happening is that we're doubling down on those core areas that we discussed, bed, bath, kitchen storage, and indoor decor, we're investing in those, we're curating our inventory, we're clarifying our price. Our price equity in the market is very strong, and we're really trading in an omni channel way, which means customers viewing us online, shopping in-store, or purchasing through digital. All that is adding up to a strong bounce back to share recovery for us in those key areas, and we're seeing both existing and new customers follow that trend. We're seeing slightly stronger baskets, and average transaction value from a digital customer, but we're seeing real strength in those areas. One of the things we've been looking at, Steve, is the two-year stack, and I think it's interesting to note that while we saw over 100% growth in our top categories, it was interesting scenario like kitchenware that really did booming Q1 last year, but we're seeing double-digit comps in that category on 2019 numbers, which means that trend is sustained, people still cooking . And they're still thinking about Bed Bath & Beyond in that equation. So, we see that having our full omni channel suite of stores and digital back operational on this quarter has really brought us back to share growth, and we're going to continue that transformation quarter-by-quarter. Operator: Our next question comes from Simeon Gutman from Morgan Stanley. Unidentified Analyst: Good morning, guys. This is for Simeon. Two questions; first one, Mark, just on the own brands and engagement around that, could you just maybe share some of the KPIs that you guys are tracking to gauge your success there, whether that be POS data or just store traffic trends that you could share once you've introduced those brands into a store? Mark Tritton: Sorry, wrong, mute button. Great question, I think for us, definitely it's around our sales targets and plans, and the penetration rate overall. And we're seeing a lot of curiosity and a lot of engagement with these brands. And so, for us, we're seeing our penetration rate on our brand increased rapidly. As we said, we hold that from our 2020 number, and actually the 2019 number, so we're probably at around 9% static, we're seeing that in the high-teens. And we had declared that our goal for the full-year was 20% penetration rate by the end of the year. So, we're very early off to a great start. We have exit of own brand product that is aged as well as the introduction of new, customers who respond really, really strongly, we look at a number of digital metrics here, as well as social media engagement and all of those have been extremely positive. Operator: Our next question comes from Christopher Horvers from JPMorgan. Christopher Horvers: Thanks. Good morning, everybody. See you reached 34.9 gross margin in the first quarter, so a few questions there, one, do you think that sort of the clearance activity from the store closures and the own brand transition is done such that there wouldn't be any deductions going add back going forward? And just longer-term if we center on that 34.9, you haven't introduced all of the private label brands and own brands that that you plan to, so how are you, how does that 35 in 1Q inform how high you think the gross margin could be over the long-term? Mark Tritton: Yes. Thanks, Chris. As we increased our brands, we have both exit and clearance and markdowns as well as the introduction of the high margin products. I would say to you, it bodes well, but we'll continue to see a transition on markdowns and introductions as we introduce the next three brands into key rooms and categories through Q2 with more stabilization in the second-half. We've been really clear about that, that we saw that there's stronger margin potential in the second-half than the first. Although we do see Q4 traditionally being a little softer best of the rest of the year versus our annualized rate. So, the good news is that we see early positive upside. We had all along and we were very pleased to come above our guidance, so that that we are in a transition phase and establishment phase, and then will stabilize that in the second-half. So, we think that will be positive. But again, we're in the early stages of our transformation. I think an over the deck we see sequential growth in margin. I think an over declaration of that, we'd be not prudent so we continue to monitor it carefully. Operator: Our next question comes from Michael Lasser from UBS. If you'd let me to please unmute yourself. Michael Lasser: Good morning. Thanks for all for taking my question. It's a two parter. The first part is so your core categories, your destination categories, if you look on a two-year arithmetic stack, we're up 107% the other categories which represent a little over a third of the business for only up on a two-year stack 88%, I know you're focused on the core categories. But the other categories are still important. When do you think you can get all of them working together simultaneously? And the second part of the question is, your quarter overlapping for a period of the distribution of some sizable stimulus. How much do you think that contributed to your performance during the period? Thank you so much. Mark Tritton: Thanks, Michael. Yes, I think, we've got areas like personal care for us. Luggage segment salary categories that are underperforming versus those other core categories, again, our investment has been in the core that's driving more of our attention activity. And that's the first cab off the rank. I think what we'll see is more stability in the second-half with that. We're starting to see some early signs of return to that. We really want to see encouraging store traffic, because that is more of a store-based business than a digital business. So we'll see that balance out in the second-half. I think in terms of the overall stimulus package, what we see -- what we saw in the quarter that for us, I think it provided overall consumer confidence. But in terms of driving the majority of the sales, we think that it's more based some of our initiatives, their engagement, and then the incremental activities we had like our brand launches. And so, I think everyone's benefiting to a certain degree. But we see our strategic factors driving that. So for us versus a lot of our competitors, we see more stability in the trend, rather than getting trips and traffic through food and other areas that were benefited from the stimulus package, which we've seen through the data that we don't participate in. Operator: Our next question comes from Carla Casella from JPMorgan. Carla Casella: Hi, we're seeing a relatively large cash balance, and you gave some comments around cash flow, but do you talk about your priorities for that cash flow? Gustavo Arnal: Yes. Hi, Carla; Gustavo here. We remain focused on capital allocation principles. I mean, first and foremost, invest in the business that we're doing, maintaining a strong balance sheet and improving our debt-to-EBITDA credit ratios and returning capital to shareholders as we're doing with share buyback. So we will continue being agile on our cash balance and our cash flow and act accordingly to our principle. Mark Tritton: Yes, Carla, I just add in there that like we're at the very early stages of our transformation. We have a lot of things in place. Our brand investments, technology, supply chain, remodeling about stores and upgrading about digital. What we will continue to look to do is where we have free cash flow or additional free cash flow. How can we look to deploy that against accelerating our efforts in the transformation, but as yet we are steady and we're watching those plans evolve. Great news, we're in the right position to be able to review and invest as we move forward. Operator: Our next question comes from Kate McShane from Goldman Sachs. Kate McShane: Hi, good morning. Thanks for taking my question. I just wanted to go back to the store comp, which was down 20% versus 2019. I just wondered if you could maybe contextualize what your expectation is specifically for store comp and your guidance? What you think drives the improvements specifically to the store and is the solution really the completion of the fleet optimization? Mark Tritton: Thanks, Kate. Yes, a couple of things there. I think that we still see upside in the return to stores. I think we're tracking this by region and seeing that there is different levels of competence and therefore traffic that are generated in specific stores. I would cite the Northeast, which is a very strong part of our business historically that is -- I think more reticent than other areas like the south to return to stores. And so for us, great news is that as a nominee always retailer, we're balancing that out. And I think there has been a permanent shift in the mix and how our customers operate between those, which is great, and we've reflected that in our operating plans. So, I think our return to strength there and traffic is really generated by a number of different things. We believe that the back-to-college period will be a really interesting pivot and to return to a new normal, and we see that brings multi-generational traffic, but new and existing customers in the store when they do that will be experiencing the new Bed Bath & Beyond whether it is a Solomon or whether it will be remodeled. In terms of the remodel, the traffic doesn't clearly rely on that as a singular strategic lever, but we are seeing in our preliminary data that the sales lift, margin lift, and even down to the brand penetration lift and traffic and transactions have increased above our existing plan where we've completed those remodels. Now we're in the early stages, so we will be sharing more at the end of Q2 probably around the statistics there, but I think some multifaceted pathway to full traffic recovery that we're embarking on as we speak. Operator: Our next question comes from Bobby Griffin from Raymond James. Bobby Griffin: Good morning, everybody. Thank you for taking my questions, Mark. I just want to maybe circle back on the composition of the comps a little bit and understand it's still blurred between digital and stores, but if you look at it on just a transaction basis, where transactions include store and digital. And then can you maybe give some color on transactions versus ticket and what's the bigger driver there versus FY19? Mark Tritton: Yes, good morning, Bobby. We're actually seeing transaction and value growth in both areas. And again, it is definitely void by digital. We're seeing that the store trips the year, are now stable against 2019 statistics. And what we are seeing is a change in behavior that when customers shop, they shop bigger and less frequently more about that's relatively stable for us. So I think people come in, they are building a basket and they're going out the door. We're seeing the change in that. We're going to continue to monitor that early on, because we're seeing our brand penetration and the price value equation really resonating with customers, which is helping build the basket, but it's early on and we want to continue to monitor that through the year. Operator: Our next question comes from -- Pardon. Gustavo Arnal: Yes, Bobby. What I would add to that real quick is that, we fee a larger proportion of our customers being homey. And as Mark said in the remarks, the frequency of their purchase is more frequent and their tickets are larger. So, that's where we feel that our digital always strategy is really, really, really driving our business. Operator: And our next question comes from Zach Fadem from Wells Fargo. David Lance: Hi, this is David Lance on for Zach. Thanks for taking our questions. Just two questions for you. Could you provide some color on the state of the coupon and how its usage is trending? And then second, the 34.9% Q1 gross margin is 40 basis points above 1Q19 levels. And so I was wondering if you could help us bridge the gaps there? Mark Tritton: Yes, I'll take that first part and Gustavo canpick up on the second part for you, David. I think in terms of coupon, we continue to see -- this is a major part of our business and something we celebrate, but we are using most strategically and surgically. So, what we're seeing is that the allocation and redemption are slightly down as per our plan, and that is mostly to do with store-based traffic changes, but also to how we've managed that and balance that against great everyday prices. So, it's definitely resonating with customers, and we are seeing then a growth in our Beyond Plus membership, which slightly offsets that. Gustavo regress margin breach. Gustavo Arnal: Yes, David. I'd say two things about our gross margin versus 2019, it is above 2019, above 50 basis points. We feel good about that because that expansion is in spite of having two times the digital mixed penetration. And also, in spite of the significant shipping costs increases that we have seen over this period, which we'll start tapping as in Q3, or Q4. Operator: Our next question comes from Jon Matuszewski from Jefferies. Jon Matuszewski: Hey, good morning, guys. Thanks for taking my questions. First one is just on the remodel, looks like the 26th recent one are exceeding internal sales estimates, you're going to be doing over 100 more for the remainder of the year. So is your updated annual sales guide contingent on those initial expectations for remodeled store productivity? And if so, is that fair to assume maybe some bias above the midpoint of your updated sales range, if the net several dozen remodeled stores do as well as the initial ones. That's my first question. Thanks. Mark Tritton: Yes, thanks, Jon. Look I think you're absolutely right. What we're seeing with the plan for the stores is that we actually plan for disruption ratio. We're actually performing better than that, as we open in for 12 weeks sequences. We're seeing that the sales gross margin over penetration and transactions are all above our estimates. Now, that's important to note, because our original remodel plan had a very healthy ROIC. And so we're exceeding that advice both from sales, then the return on invested capital level, our current plans for the full-year with only 26 of these completed does not include a revision of our original estimate on the upside of what these remodels will be going in, really looking for ongoing proof-of-concept and consistent deliverables to share and to change that trajectory. But we're very hopeful that we've got some positive on the currents that we can utilize through the year but not reflected in current plans. Jon Matuszewski: A quick follow-up on omni channel, I think you're expanding the same day delivery capabilities with DoorDash, curious if you've had a chance to take a look at kind of the customer utilizing these services, whether it skews more towards newer existing customers and obviously, it may be early, but is there any discernible trend you can see so far in terms of after customers engaged with your brand through this vehicle, anything interesting to call out? Thanks so much. Mark Tritton: Yes, I mean we're tracking not only the upside potential of what the introduction both is originally meant to our business, which is creating more stickiness with our customer. And that definitely has brought new customers in, but it's a feature that's being used by existing customers, both in our agreement with Shipped and DoorDash, our goal is to get goods to our customer faster and create more joy there, that's actually happening. And that's happening with new customers, as well as existing. And I think people are being really, really excited about the ease and convenience of shopping the Bed Bath & Beyond compared to years gone by, early indications is that customer is becoming sticky. We're looking at the age profile of that, more to follow. We want to collect more data on it. But we're seeing repeat purchases and repeat engagement as people become really happy with what that service delivers and staying tuned, we're going to be sharing more on how we're going to be expanding that kind of delivery timeframe as well as that proximity. That's a constant focus for us in that last mile. Operator: Our next question comes from Jenna Giannelli from Goldman Sachs. Jenna Giannelli: Hi, thanks for taking my question. First one is just on marketing investments, given the better top line growth margin you took up marketing in the first quarter, is that something that we can extrapolate is true for the balance of the year, I guess I'm just curious on the underlying guidance raise granted it's up but does it also include increased marketing investment than originally planned for the rest of the year? Thanks. Mark Tritton: Yes, it does include that for the rest of the year. Although what I would outline Jenna is that in Q1, we did have some exceptional circumstances, holistic investment in our brand launches that will continue through more into Q2. And then we'll see in half to that really balancing down more of a maintenance perspective. So, some incremental investment, we had our customer value proposition and a clear sight of intent throughout marketing campaign home happier that we wanted to resonate with the customers. And so, there's some in the quarter moments there that will show some sustainable investment, which is back to internal future growth. And then there's some kind of more seasonal or quarter based activity that will dissipate over the year. Operator: Our next question comes from Cristina Fernandez from Telsey Advisory. Cristina Fernandez: Hi, good morning, I wanted to ask on the private labels, can you share, I guess your early learning so far, which of the brands you've launched had more impact and what categories? And then also from a customer perspective, what is the feedback you're getting as far as like pricing or the of these new private label brands versus the national brands they replace? Mark Tritton: Yes, thanks so much, Cristina. Look I mean, I'll go straight to the consumer piece and saying that what we're seeing is, as the customer online is providing reviews, that are incredibly high, there's a great deal of satisfaction and excitement from the customer, about quality, quality and value aesthetic, and that average rating actually exceeds our average digital rating across the board. So we're very happy with that in each of the brand, I think in real powerhouses, what we're seeing very early on is, out of the three that we launched in the quarter, there was two bigger brands inside the mix. One was Nestwell, because it covers multiple categories in Bed & Bath and also to Simply Essential being a completely incremental business for us, which is opening price point. But all three brands have done very well. I think Nestwell is probably the original standout because it is featuring in our top 10 brands of sales per day, exceptionally highly and often is in the number one and two slots. So the adoption from the customer has been very, very strong and great repeat purchasing and word of mouth, the visual presentation in-store, the storytelling online, we're getting really good feedback on all that, people are feeling very engaged understanding what these brands are. And the value is very crisp and very clear in both how we've articulated and how they can value that against the competition. So all greatly so far and really excited about how these brands will play in this back to college period, particularly Simply Essential, we'll think, we'll have a more of a shining moment in back to college, even more so than it may launch. Operator: We have time for one more question. That question comes from Seth Basham from Wedbush Securities. Seth Basham: Thanks a lot, and good morning. My question is first on the destination categories, most of them performed quite well. But why did Bath & Indoor decor lag versus 2019? Mark Tritton: Yes, I think for us Seth, the issue was that probably had one of the largest product changes inside of this as we exit a lot of product, it was within our plan. And so we see this as a quarterly anomaly. As we look to regain share that we exited a number of brands, which were very dominant in the assortment prior to remix within Nestwell and haven with other brands coming through the year. So it was the category that we knew were going to take the biggest hit with exit. So, AUI was slightly off, because we had marked down product in there and higher mix. We think that that is not representative of subsequent quarters. So, that's more of a transformation and adjustment category than others. Seth Basham: Got it, and related to that, I'm sorry, go ahead. Mark Tritton: No, so, in indoor decor, ultimately, we saw some real booming in the indoor decor area and we see further opportunity there, a lot of our investments in that space are really focused on the second half of 2021. So stay tuned. Seth Basham: Got it, and relatedly, when it comes to the markdowns last quarter, your delta between adjusted and reported gross margin was 130 basis points, this quarter was 250 basis points. How should we be thinking about that delta for the subsequent quarters this fiscal year? Gustavo Arnal: Hi, Seth, we see this as a transition and it should start coming down as we move into Q2 and Q3 heaviest in Q1. Seth Basham: Fair enough, and by next fiscal year, should we be clean with no adjustments? Mark Tritton: No adjustment related to markdowns, there might be some related to but minor related to supply chain or that sort of restructuring, well clearly fiscal '21 is the major year of restructuring. Seth Basham: Thank you. Operator: I'll now turn the call over to Susie Kim for final remarks. Susie Kim: Thank you for participating on our call today. If you have any further questions, please contact us at IR@bedbath.com. Have a wonderful day. Operator: Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.BBBY Ratings Summary
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Bed Bath & Beyond Inc. (NASDAQ:BBBY) shares plunged more than 23% on Wednesday following the company’s reported disappointing Q1 results, with EPS of ($2.83) coming in significantly worse than the Street estimate of ($1.32). Revenue was $1.46 billion, missing the Street estimate of $1.53 billion. Comparable sales dropped 23%, compared to the expected 19.4% decline.
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The analysts, who lowered their price target to $5 from $7 following the results, said that pushing too hard on an owned brand merchandising transformation proved hazardous for the company given very long order lead times compounded by external supply chain pressures.
The analysts believe the company would have been better served moving slower on merchandising, and first focusing on fixing its poor IT and supply chain systems.
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While the company’s merchandising transformation has the potential to drive stronger unit sales at higher margins, the analysts are cautious, as they have seen limited signs of this paying off in 2021.
Bed Bath & Beyond Down 4% Following Q2 Results
The company attributed the trend deterioration in July and especially in August primarily to lower traffic as a result of resurging COVID-19 cases, but also noted missteps including shifting too much of its marketing from circular and coupon distribution to social media.
At the same time, accelerating freight costs through the quarter drove a gross margin miss, an issue that may pinch other retailers that have yet to report results for the August period.
