Bed Bath & Beyond Inc. Earnings Fall on Flat Sales and Higher Costs

By Markets Fool.com

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Bed Bath & Beyond (NASDAQ: BBBY) reported second-quarter results on Sept. 21. The home-furnishings retailer saw its profits plunge as costs rose and sales remained sluggish.

Bed Bath & Beyond results: The raw numbers

Metric

Q2 2016

Q2 2015

Growth (YOY)

Revenue

$2.988 billion

$2.995 billion

(0.2%)

Net earnings

$167.3million

$201.7 million

(17.0%)

Earnings per share

$1.11

$1.21

(8.3%)

Data source: Bed Bath & Beyond Q2 2016 earnings press release. YOY = year over year.

What happened with Bed Bath & Beyond this quarter?

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Net sales were down less than 1% year over year at $2.988 billion. On a comparable basis, sales fell 1.2%, compared with a 0.7% increase in the second quarter of 2015. That comes despite comps growth of more than 20% in the company's digital channels, overshadowed by "the low single-digit percentage range" comps decline atbrick-and-mortar stores.

"As retailing continues to evolve, there has been a democratization of shopping enabled by technology and the Internet, which has resulted in an ongoing shift in the way the customer shops," said CEO Steven Temares in a conference call with analysts. "We now have more choices, more transparency, and more convenience than ever, all resulting in significant investments in technology and dramatic shifts in the retail landscape, highlighted by both new shopping options on one end and retail consolidation and closings of websites and stores on the other."

Bed Bath & Beyond's profitability also declined, with gross and operating margins falling to 37.4% and 9.4%, respectively -- down from 38.1% and 11.7% in the year-ago quarter. Higher coupon, shipping, labor, and technology costsall contributed to the decline.

"It is a transitional time for retail," said Temares. "And many retailers, including us, are experiencing pressure on their operating margins."

All told, net earnings plunged 17% to $167 million, while earnings per share, which were helped somewhat by share buybacks, fell 8% to $1.11.

Looking forward

Management reiterated its guidance for fiscal 2016 earnings per share of between $4.50to just over $5.00, which iscommensurate with the earnings the company has delivered since fiscal 2012.

Management also continues to expect full-year comparable sales to be flat to up 1%, with net sales expected to rise about 125 to 140 basis points higher than the increase in comp sales.

Additionally, the company stated that its margins are likely to weaken further due to continued technology investments, wage increases, and the expected impact of higher coupon and shipping expenses.

"As consumer shopping preferences continue to shift to digital, our investments are driving a better omnichannel experience," said Temares. "During this evolution, we recognize that we must remain disciplined in our efforts to achieve positive returns and improve the long-term profitability of our company, while returning value to our shareholders."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.