Why Bed Bath & Beyond Stock Fell 15% in 2016

By Demitrios Kalogeropoulos Markets Fool.com

What happened

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Specialty retailer Bed Bath & Beyond (NASDAQ: BBBY) dropped 15% last year, according to data provided by S&P Global Market Intelligence.

BBBY data by YCharts.

The decline ensured that shares trailed the broader market's 10% rise, but the company fared better than many peers in a retailing industry pinched by slumping customer traffic.

So what

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Bed Bath & Beyond was up by as much as 7% early in the year, but those gains morphed into losses as operating trends worsened. Its first quarterly report of the year showed a healthy 2% boost in comparable-store sales and gross profit margin of 38%.

Image source: Bed Bath & Beyond.

Subsequent announcements weren't as rosy. Bed Bath & Beyond's comps fell in each of the next three quarters as gross profit margin slipped to 37% of sales. Overall, the company believes comps will fall by about 1% for the full fiscal year.

Now what

Declining customer traffic is proving to be a huge challenge for the retailer. It can lessen the negative impact from the dearth of shoppers by improving its merchandising and thus boosting average spending per visit. But that's a tough balance to strike because higher prices tend to drive customers away.

The e-commerce sales channel shows more promise, given that it grew by over 20% in every quarter of 2016. Yet this expansion comes at a price, too. Capital expenditures are up to nearly $425 million from $329 million last year.

Thanks to falling profit margins and increasing costs, Bed Bath & Beyond appears set to earn just $4.50 per share for the fiscal year that ends in February, 2017, for its lowest annual result since 2012. Under those circumstances, it's hard to see the stock price rebounding -- at least until comps growth returns and investors start seeing financial benefits from management's e-commerce spending spree.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Bed Bath and Beyond. The Motley Fool has a disclosure policy.