Bed Bath & Beyond Inc. Sales Rise, Profits Fall

By Joe Tenebruso Markets Fool.com

Bed Bath & Beyond (NASDAQ: BBBY) reported fourth-quarter results on April 5. The home furnishings retailer is seeing its profits dwindle as it attempts to adapt to a changing retail environment.

Continue Reading Below

Bed Bath & Beyond results: The raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Revenue

$3.534 billion

$3.418 billion

3%

Net earnings

$269 million

$304 million

(11%)

Earnings per share

$1.84

$1.91

(4%)

Data source: Bed Bath & Beyond Q4 2016 earnings press release.

Image source: The Motley Fool.

What happened with Bed Bath & Beyond this quarter?

Continue Reading Below

Net sales rose 3.4% year over year to $3.5 billion, with most (3%) of the increase coming from recent acquisitions and new store openings.

Comparable sales inched up 0.4%, driven by a more than 20% increase in comps from Bed Bath & Beyond's digital channels. Still, the home goods retailer continues to struggle with declining traffic in its stores, with comparable-store sales decreasing "in the low single-digit percentage range."

Despite its overall sales growth, Bed Bath & Beyond's profits margins remain under pressure from e-commerce rivals. Gross and operating margins fell to 38% and 12.2%, respectively -- down from 38.6% and 14.6% in the prior-year period. Higher shipping, coupon, advertising, and labor costs all factored into the decline.

All told, net earnings dropped 11% to $269 million, and earnings per share -- which were helped somewhat by share buybacks -- decreased 4% to $1.84.

Capital returns

Bed Bath & Beyond's board of directors approved a 20% increase to the company's quarterly dividend, to $0.15 per share, which it says is a "reflection of the long-term health of the business and commitment to creating shareholder value."

Additionally, Bed Bath & Beyond repurchased$171 millionof its stock in the fourth quarter. The company ended fiscal 2016with $1.7 billion remaining in its share repurchase program, which management expects to complete by fiscal 2020.

Looking forward

Bed Bath & Beyond expects fiscal 2017 net sales to increase in the "low to mid single-digit percentage" range. Management likewise expects comparable sales to rise, although the forecasted range is from "relatively flat to slightly positive," driven primarily from digital channel growth.

Additionally, gross and operating margins are likely to decline further in fiscal 2017, due to anticipated increases in shipping, coupon, payroll, and technology expenses. In turn, earnings per share are projected to decrease as much as 10% in 2017.

Perhaps surprisingly -- in light of the shifting retail landscape that is seeing more and more sales migrate online -- Bed Bath & Beyond plans to open 30 new stores in the year ahead. The company does plan to close between 15 and 20 underperforming stores, but that would still lead to a net increase of about 10 to 15 locations. It's an interesting -- and potentially risky -- strategy, coming at a time when many brick-and-mortar retailers are shuttering a large number of stores.

Despite this difficult competitive environment, management remains optimistic that Bed Bath & Beyond can maintain its position as a leading home goods retailer.

"As we look back over this past year, we have made and continue to make significant investments in our company to advance our core objective," said CEO Steven Temares during a conference call with analysts, continuing:

By focusing on our mission and remaining grounded in our culture obsessed with satisfying our customers, along with maintaining strong financial discipline, we will become the customer's first choice for the home and heart-related life events and continue to achieve long-term success.

10 stocks we like better than Bed Bath and Beyond
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now...and Bed Bath and Beyond wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 3, 2017.

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