Bed Bath & Beyond (BBBY) is trading sharply lower today after reporting Q4 (Feb) results and providing guidance last night. Adjusted EPS for Q4 (Feb) came in better than expected at $1.20. Revenue fell 11.0% yr/yr to $3.31 bln, which was basically in-line, though perhaps a little light. The revenue decline was "primarily due to having one less week in the quarter and the shift of the post-Thanksgiving holiday sales week out of Q4."
As we mentioned in our preview yesterday, guidance for FY19 adjusted EPS would be critically important. On that front, BBBY actually raised its guidance to $2.11-2.20 from prior guidance of ~ $2.00. In the just finished FY18, BBBY reported full year adjusted EPS of $2.05. However, BBBY also guided to Q1 May) non-GAAP EPS of just $0.07-0.12, which is well below expectations.
Same store comps are always important. Unfortunately, BBBY has now reported eight straight quarters of declines as FebQ comps came in at -1.4%, in-line with market expectations of a slight negative number. This was "comprised of strong sales growth via its digital channels and a decline in the mid-single-digit range for the brick-and-mortar stores."
Investors had their hopes up that AugQ (-0.6%) or NovQ (-1.8%) or perhaps FebQ (-1.4%) would see a return to growth, but it was not to be. Comps for FY19 are expected to decrease in the low- to mid-single-digit percentage range.
BBBY also provided an update on its transformation plan. The company says the "pace of its transformation accelerated during fiscal 2018 and it made measurable progress within each of its four focus areas of its plan." In fiscal 2019, BBBY is modeling for EPS to grow slightly and that's despite spending money on initiatives.
One of BBBY's primary goals for FY18 and FY19 has been to moderate the declines in operating margin and EPS with an expectation of returning to EPS growth by FY20. However, BBBY now expects to grow EPS slightly in FY19, with acceleration thereafter. A key strategy is that BBBY is focusing more "on destinational categories in its assortment, including bed, bath, kitchen, windows and tabletop and meaningfully growing its differentiated products including proprietary brands."
In March 2019, BBBY "launched the first of six new private label home furnishings brands that are planned to be introduced over the FY19-20 timeframe. Bee & Willow Home consists of products across key categories such as decorative furnishings, bedding, tabletop, kitchen, home décor, rugs, candles, and floral. While it is still early in the campaign, Bee & Willow categories such as bedding, area rugs and decorative accessories are performing well. In addition to proprietary brands, BBBY is also focused on growing preferred third-party brands such as UGG, of which most of BBBY's assortment is exclusive. "
A big change underway is that BBBY is decreasing the number of coupons it provides to customers. This will certainly have a negative near-term impact on sales, but the goal is to increase profitability. BBBY is also developing tools to "customize the timing and depth of a markdown."
So why is the stock down so much? While Q4 results were pretty good and the full year EPS guidance was quite strong, the EPS guidance for Q1 (May) is well below expectations and the full year comp guidance of a decline in the low-to-mid-single digit range is being viewed as a disappointment. A big reason for the weak comp appears to be related to BBBY's decision to cut back on coupons. The hope is that this will increase margins down the road, but this may anger customers who are accustomed to the numerous coupons offered.