Bed Bath & Beyond Whiffs Again -- Should Investors Be Worried?

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Bed Bath & Beyond (NASDAQ: BBBY) disappointed shareholders with its latest quarterly results, and the stock is down over 13% since the report dropped. Year to date, shares have shed nearly half of their value as the home goods retailer keeps failing to deliver on rebound strategies.

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The ugly stats from the second quarter

During its second quarter, which wrapped up at the end of August, revenue declined 1.7% to $2.9 billion. Bottom-line earnings per share fell to $0.67, a 40% decline from last year's $1.11 figure.

Earnings were negatively impacted by an $0.08 per-share charge related to "management restructuring" (more on that later), another $0.02 in estimated Hurricane Harvey-related expenses, and $0.01 due to accounting changes. But even when adding those one-time items back in, the bottom line still fell 30%. Clearly, there is more hurting the company than simple one-off expenses.

The big news was a 2.6% overall drop in comparable sales, a metric that accounts for foot traffic and average customer purchase size. That decline underscores a recent trend that has been affecting the company, and the retail industry overall, as shoppers are increasingly turning to online merchants.

Period

Comparable-Store Sales Increase (Decrease)

Fiscal year 2015

1%

Fiscal year 2016

(0.6%)

Q1 2017

(2%)

Q2 2017

(2.6%)

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A silver lining here is that the company's online sales reportedly increased over 20% for the 13th consecutive quarter. The problem is that the digital business is only a small slice of the pie -- physical store traffic still provides the lion's share of revenue. Traffic decreased by mid single digits, more than offsetting the digital gains. Management sees a similar trend unfolding for the rest of 2017.

Digging itself out of a hole

No matter what happens for the balance of the year, one thing is certain: The company must stop the trend of declining traffic. Most disturbing to me, though, is Bed Bath & Beyond management's seeming inability to do anything to improve either the top or bottom line.

The company bought online personalized home goods retailer PersonalizationMall.com last year for $190 million in cash. Another acquisition, of home decor company One Kings Lane, reportedly only cost some $12 million but has also done little to reverse the slide in sales.

For many retailers, incorporating a digital channel into their selling model helps increase profitability. This has thus far not been the case for Bed Bath & Beyond. In addition, selling and general expenses increased to 30.6% of sales in the last quarter, compared to 28% last year. That also took a bite out of profitability, and the trend is expected to persist throughout the year.

The reason the transition is hurting Bed Bath & Beyond is that the company has been late to pick up on the consumer shift to e-commerce. As it hastens to catch up to industry trends, it is undergoing big changes. In addition to paying for the aforementioned acquisitions, the company has had to invest in technology and infrastructure to support online sales, shipping, and other related logistics.

Earlier this month, the company announced the restructuring of store management. In short, that means layoffs -- approximately 880 companywide. Bed Bath & Beyond expects to refocus staffing toward non-management roles. A new chief information officer and a first-ever chief technology officer were also recently hired. Why the company didn't hire someone to head the technology initiatives sooner is beyond me but better late than never.

Time to jump ship?

This has been a year worth forgetting for the company, and the pain is not over. Management hasn't provided much in the way of a timeline for when to expect turnaround efforts to yield results. The road ahead looks bumpy for this big box store, and I think it could be time for shareholders to start making some tough decisions.

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Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.