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Jan 10, 2019

Bed Bath & Beyond rally loses steam with analysts doubting rosy forecast

Bed Bath & Beyond

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Bed Bath & Beyond Inc. shocked investors with a rosy forecast for fiscal 2020, but analysts remain skeptical about the company’s ability to hit its targets. Some doubt the company’s strategy of prioritizing profitability over near-term sales. The shares pared their gains to less than 8 percent in pre-market trading -- after having risen as much as 24 per cent in extended trading on Wednesday. The stock may also be getting hit by a wave of disappointing holiday sales results from larger retailers.

Here’s what analysts are saying about Bed Bath & Beyond:

Telsey Advisory Group, Cristina Fernandez

  • 3Q comparable sales miss points to accelerating market share losses
  • Gross margin decline of 213 bps was worse than the 150 bps Telsey had modeled, reflects continued pressure from higher promotional activity and more coupon usage
  • While BBBY “struck a positive tone” with its EPS and operating margin forecasts for the year ended February 2020, Telsey said the outlook is “too optimistic given the ongoing comp declines and as the company continues to face pressure from higher coupons and promotions, as well as elevated competition"
  • BBBY’s initial annual forecast has proven “too optimistic in each of the past three years”
  • Rates market perform, price target US$13

Loop Capital, Anthony Chukumba

  • 3Q results weren’t as impressive as they initially appeared as earnings benefited from a one-time gain and an “abnormally low” tax rate
  • Still, encouraged by management’s much better-than-expected 2020 EPS forecast, which suggests there is finally a “light at the end of the tunnel following years of steady profit margin deterioration”
  • Rates hold, price target to US$13 from US$12

Morgan Stanley, Simeon Gutman

  • 3Q EPS was in line “but only on the surface”; excluding the US$30 million one-time gain (16-cent EPS benefit) from the sale of a building, underlying EPS was 2 cents
  • Company’s plan for “flattish” EPS and margins in 2020 “was relatively light on details” and Gutman is not convinced it is achievable given continued sales and earnings headwinds, including stiff competition from companies including Wayfair, Walmart, Target, Costco and At Home Group
  • Has “low confidence trends will improve materially” in 2020 as consumer spending is likely to decelerate and costs including freight and wages are rising
  • Rates underweight, price target US$13

Guggenheim, Steven Forbes

  • 2020 forecast looks aggressive as it’s “difficult to envision margin stabilization,” due to factors including costs, continued gross margin pressure and continued declines in store-level comparable sales
  • Management is prioritizing profitability above near-term sales growth, but Forbes thinks BBBY “may be better served balancing the two” goals given modest industry growth outlook and competitive environment
  • Rates neutral