Bed Bath & Beyond Inc. Profits Plunge 29%

By Joe Tenebruso Markets Fool.com

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Bed Bath & Beyond (NASDAQ: BBBY) reported third-quarter results on Dec. 21. The home-goods retailer is struggling with sluggish sales and falling margins.

Bed Bath & Beyond results: The raw numbers

Metric

Q3 2016

Q3 2015

Year-Over-Year Change

Revenue

$2.955 billion

$2.952 billion

0.1%

Net earnings

$126 million

$178 million

(28.9%)

Earnings per share

$0.85

$1.09

(22%)

Data source: Bed Bath & Beyond Q3 2016 earnings press release.

What happened with Bed Bath & Beyond this quarter?

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Net sales inched up 0.1% year over year to $2.955 billion. On a comparable basis, sales fell 1.4%, compared with a 0.4% increase in the year-ago quarter, as the impact of "low-single-digit" declines in Bed Bath & Beyond's same-store sales more than offset a greater than 20% increase in comps from the company's digital channels.

"The lion's share of our business is done in bricks and mortar," said CEO Steven Temares during a conference call with analysts. "And the foot traffic that we're seeing, the reduction in foot traffic, I think has been seen across all retail, and as long as we have a significant component in bricks and mortar like that, that is a bit of a headwind for us."

Bed Bath & Beyond's profitability also continued its downward trend, with gross and operating margins falling to 37% and 7.1%, respectively -- down from 37.8% and 9.9% in the prior-year period. Higher coupon, shipping, labor, and technology costs all contributed to the decline.

All told, net earnings plummeted 29% to $126 million, while earnings per share, which were helped somewhat by share buybacks, dropped 22% to $1.05.

Looking forward

These results led Bed Bath & Beyond to cut its full-year sales forecast. Comparable sales are now projected to decline by approximately 50 basis points, with net sales increasing about 1%. Bed Bath & Beyond's previous guidance was for full-year comparable sales to be flat to up 1%, with net sales expected to rise about 125 to 140 basis points than the increase in comp sales.

Bed Bath & Beyond also said that it now expects its fiscal 2016 earnings per share to come in at the low end of its guidance range of $4.50to $5.00.

"In summary, it continues to be a transitional time for retail," said Temares. "As our business transforms, we are navigating the competitive landscape and adapting as customer preferences and purchasing behavior evolve."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Bed Bath and 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.