Questionable Strategy, Disappointing Report: Analysts React To Bed Bath & Beyond's Q4 Earnings

Home goods retailer Bed Bath & Beyond Inc. BBBY on Wednesday reported fiscal fourth-quarter results that came in better than expected, but guidance for the coming year disappointed. Here is a summary of how some of the Street's top analysts reacted to the print and guide.

The Analysts

UBS analyst Michael Lasser maintains a Neutral rating on Bed Bath & Beyond with a price target lifted from $13 to $18.

Wedbush's Seth Basham maintains at Neutral, price target lifted from $14 to $19.

Tigress Financial Partners' Ivan Feinseth.

UBS: Time To Turn Optimistic?

Bed Bath & Beyond's fourth quarter and same-store sales were mostly in-line with expectations, but Lasser says the company has a game-plan moving forward that contrasts what rival retailers are doing. Specifically, management will prioritize profit over sales through lower discounting, lower marketing spend and more stringent return policies.

Emphasizing profit at the expense of revenue has a "limited shelf life" and management's objective of a low-single digit sales growth in the long-term could be difficult to achieve, the analyst wrote in the note. As such, the stock is likely to continue trading at "inexpensive multiples" even if the Street's estimates move higher.

Wedbush: Questionable Strategy

Bed Bath & Beyond's strategy of prioritizing profit over sales is not an appropriate long-term strategy, Basham said in a research report. It's not clear the company can simultaneously grow sales and gross margin while dealing behind the scenes with pleasing activist investors.

The analyst says improving sales trends in the near term could be a challenge as 2018 results were boosted by Babies 'R Us share gains. This may be evident in management's 2019 guidance of a 3.9-percent sales decline and flat sales in 2020.

Tigress: 'Very Disappointing' Report

The retailer's earnings were "very disappointing" as the report failed to show any material improvement, Feinseth said in his daily newsletter. Full-year losses totaled $137.2 million versus a profit of $424.9 million last year.

Bed Bath & Beyond could do well in the in-store channel, Feinseth says but its strategy involves cutting back inventory and pushing customers to shop online. Meanwhile, a potential activist campaign adds a "distraction" for management and is likely to translate to little upside potential for the stock.

"I have been saying that the recent strength is a selling opportunity as I believe downside to the low teens exists," Feinseth said.

Price Action

Bed Bath & Beyond's stock was trading lower by more than 8.6 percent at $17.73 per share.

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