Raymond James: Bed Bath & Beyond Could Be Unbound After Q2 Report

Like many of its retail peers, Bed Bath & Beyond Inc. BBBY could post a big beat in second-quarter sales, but that won't necessarily read through to better near-term margins, according to Raymond James. 

The Analyst 

Analyst Budd Bugatch upgraded Bed Bath & Beyond from Underperform to Market Perform.

The Thesis

Bugatch said he anticipates outperformance in same-store sales given a better-than-expected retail environment. (See the analyst's track record here.) 

Despite a projected drop in year-over-year earnings, Bed Bath & Beyond's Sept. 26 quarterly print presents a "trading opportunity" — and nothing more specific than that, Bugatch said. 

“Since a bearish rating now seems too harsh and a constructive rating yet too aggressive, we believe a neutral-type rating is now more appropriate for BBBY — at least until we find the path to an operating profit/margin improvement to be more visible,” the analyst said. 

This is better than the retailer's previous condition, which saw trailing-four-quarter consolidated operating margins compress by more than 1,000 basis points.

“The last five years have been very difficult for Bed Bath’s shareholders; and not much fun for company leaders or board members,” Bugatch said. “While management was focused on transforming Bed Bath by building-out its digital/analytical capabilities and by seeking to become ‘trusted by its customers as the expert for the home and heartfelt life events,’ its efforts came at a high cost.”

Now, with Bed Bath & Beyond guiding for near-term comps growth and diminished declines in operating profit, Raymond James predicts a 2020 bottom to the TFQ operating margin.

Price Action

Bed Bath & Beyond shares were up 5.59 percent at $19.08 at the time of publication Monday.

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