Bed Bath & Beyond's Woes Will Continue, Analyst Says

Home furnishing and domestic merchandise retailer Bed Bath & Beyond Inc. BBBY reported Wednesday its second-quarter results, which not only fell short of expectations but signals further pain ahead, according to KeyBanc.

Earnings came in at 36 cents per share, below the 50-cent per-share estimates. Sales were $2.94 billion.

The Analyst

KeyBanc Capital Markets' Bradley Thomas maintains an Underweight rating on Bed Bath & Beyond with a price target lowered from $16 to $15.

The Thesis

Bed Bath & Beyond's earnings report saw a 47-percent drop in earnings from a year ago and a 0.6 percent decrease in comps versus expectations of a 0.5 percent increase, Thomas said in a note. Comps decelerated on a two-year and three-year basis, which is "particularly disappointing" given a much stronger consumer backdrop.

The quarter also marked the 26th consecutive quarter of gross margin declines and showed the largest quarterly drop ever seen at 271 basis points.

Thomas said the bearish case for the stock will likely continue as multiple issues plaguing the company will continue for some time. For example, recent investments in the online business and IT capabilities have impacted profitability but further investments are needed in the website, systems, and mobile business.

The retailer's long history as being a quality retailer and well-run company could be in jeopardy as it faces multiple competitive headwinds in terms of price, selection and delivery perspectives.

Price Action

Shares of Bed Bath & Beyond were trading lower by more than 16 percent Thursday morning at $15.69, far below the stock's 52-week low of $16.52.

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