It seems that the momentum of omnichannel retailer Bed Bath & Beyond’s (BBBY) dismal run on the stock market is continuing, almost a week after its disappointing second-quarter fiscal 2021 (Q2F21). Just as we thought we have seen the worst for the stock, with its unceremonious 22% downward spiral following the earnings release on September 30, more investors chucked BBBY out of their portfolio yesterday.
To put things into context, the news and as a result, investors, not been too kind with BBBY ever since it released its Q2F21. Persistent supply chain challenges, rising inflation, slow traffic, and contracting margins were the highlights of the quarterly results.
Moreover, the October 4 launch of its home décor line— the Studio 3B— seemed to have done more damage than damage control for the stock. Notably, shares of BBBY declined another 4.27% at the close of last day’s trading session, despite the announcement of the launch.
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The launch marks BBBY’s seventh Owned Brand product line, offering more than 600 products for everyday living at affordable prices. In the first quarter of fiscal 2021, the company introduced three Owned Brands, including Nestwell, Haven, and Simply Essential. In the fiscal second quarter, it went on to launch three more Owned Brands—Wild Sage, Our Table, and Squared Away.
These Owned Brand launches, including Studio 3B, are a part of BBBY’s three-year transformation plan, which includes at least eight Owned Brand launches in fiscal 2021. Moreover, the company plans to bring in 10 Owned Brands in the next two fiscal years. With these launches, BBBY ultimately aims to strengthen its Bed Bath & Beyond banner, which contributes about 60% to its revenues.
This leaves us with one question— if the launch is a positive development, then why did it drive out more investors? We can only draw possible reasons by looking at the company’s trends for the past few months. Its results have probably shaken investors’ confidence in the company.
Firstly, BBBY’s Q1F21 results were far from “strong,” as the company so confidently described them. Year-over-year sales decline, significant GAAP net loss and paltry adjusted earnings were not what investors expected.
Moreover, in the even worse Q2F21 results, management commentary indicated weak business in September. Furthermore, BBBY expects sales to remain flat on a year-over-year basis in Q3F21.
Then again, a reduced full-year outlook of adjusted earnings between $0.70 and $1.10 per share and revenues within the range of $8.1 billion to $8.3 billion also seems difficult to achieve. The company is hopeful of a business recovery in the last leg of the ongoing quarter, and has based its reduced guidance on this hope. Moreover, its full-year earnings projection also calls for exceptionally high earnings in the Q4F21, making the projection seem like wishful thinking.
It remains to be seen whether BBBY’s ongoing strategic restructuring program, solid digital growth, and efforts to increase its Owned Brands can pull the company out of this rut and provide any tailwind to the stock prices.
The Wall Street consensus also remains cautious, with a Hold rating, based on 2 Buys, 5 Holds, and 4 Sells. The average Bed Bath & Beyond price target of $18.3 indicates an upside potential of 21.8%.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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