Bed Bath & Beyond (BBBY) Plunges On Soft FY18 Outlook
Zacks Investment Research | Apr 15, 2018 10:13PM ET
Bed Bath & Beyond Inc. (NASDAQ:BBBY) is among the stocks that delivered solid top- and bottom-line performances in the near past. Notably, the company reported the second straight quarter of earnings and sales beat in fourth-quarter fiscal 2017. Results were driven by solid sales growth, owing to the progress on its transformation efforts and other customer-centric initiatives. (Read More: industry ’s decline of 2.3%. The stock was mainly punished due to a weak fiscal 2018 outlook as the company expects the soft margin and comps trend to continue in the future.
The company’s comps declined in fourth-quarter fiscal 2017 due to the lower number of store transactions, somewhat mitigated by higher average transaction amounts. While comps from customer-facing digital networks improved, comps at stores fell at a mid-single-digit rate. Further, the company has a seven-quarter long trend of reporting strained margins due to higher shipping and coupon expenses, which continued in the fiscal fourth quarter.
Consequently, the company provided a bleak outlook for fiscal 2018, which is likely to bear a 5 cents negative impact due to the absence of the 53rd week compared with the previous year. It expects a clear shift of sales and expenses from the fiscal fourth quarter to the third quarter due to the calendar shift. The company anticipates an earnings shift from the third quarter to the fourth quarter as well.
For fiscal 2018, the company expects consolidated net sales to remain relatively flat to marginally up year over year. Driven by persistent growth in the customer-facing digital channel, it envisions comps to increase in the low-single-digit percentage range.
Furthermore, Bed Bath & Beyond projects gross margin deleverage in fiscal 2018, mainly owing to continued investment in the customer value proposition and the constant shift to the digital channels. SG&A is estimated to increase on account of investments toward transformation. However, the company expects to witness operating margin to decline lower than that in fiscal 2017. Depreciation expenses are anticipated to be $315-$325 million while net interest expenses are projected to be $75 million. It also expects the tax rate to be 26-27% for the fiscal.
Considering all these factors, the company envisions fiscal 2018 earnings per share to be in the low-to-mid-$2 range compared with adjusted earnings per share of $3.12 in fiscal 2017.
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Driven by the soft earnings view, the Zacks Consensus Estimate witnessed a downtrend in the last seven days. Estimates for the first quarter and fiscal 2018 declined 13 cents and 40 cents, respectively, to 33 cents per share and $2.36 per share. Moreover, estimates for fiscal 2019 dropped 57 cents to $2.02 per share.
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