Bed Bath & Beyond (BBBY) is trading a good bit lower (-7%) after reporting Q1 (May) earnings results last night. There's a lot to digest in the company's earnings press, but here are the key points. The company reported a $0.04 EPS beat, and it revenue was in-line. However, any positive sentiment that those results provided was more than offset as same store comps fell -6.6% and the company guided full year EPS and revenue to the low end of prior guidance.
In terms of the comps, part of that is from the company phasing out lower-margin products. BBBY's goal with its turnaround has been to focus on profitability and not worry as much about revenue. And that dynamic clearly played out in MayQ, as showcased by the pairing of an EPS beat with weak comps. On the call, BBBY said that it expects this trend to accelerate in the coming quarters.
With respect to the guidance, it was good to see it was not lowered. However, guiding to the lower end is not much of a consolation prize. Also, in the past, BBBY has provided specific EPS and revenue guidance for the next quarter, but it chose not to this time. Perhaps that was a strategic decision with a new interim CEO in place. On the call, BBBY did provide some directional guidance, saying that it expects to see improvement as the year progresses, including a gradual sequential improvement in comps.
As we mentioned in our preview, BBBY's long time CEO stepped down in May. This was a move we think was overdue, as he had been slow to adapt to a new retail landscape shaped by consumers shopping more online. We believe that BBBY needs a new vision/strategy. On that point, the company has brought in directors, as 12 of the 13 have been there fewer than two years, which we view as a positive.
In terms of a new strategic direction, BBBY talked about some issues connected to business transformation generally on the call but did not provide many specifics. It seems like management is still evaluating the state of the business. One positive thing that really stood out to us is that the company is actively in discussions with landlords around the country to negotiate lower rent. Adjusting leases could have a big impact on costs, and it's smart to do this as mall traffic is down and rent prices have been falling. Landlords would not want to lose an anchor tenant like BBBY.
Looking ahead, the next key item with BBBY is who it hires as its next CEO. We thought perhaps a new hire would be announced with earnings, but that was not the case; the search remains ongoing. It's important BBBY hires someone with a track record for creating an omnichannel retail platform that can bridge brick-and-mortar locations with online sales. This person needs a plan for BBBY to compete in an age of online retail shopping. Whomever it hires will have a big impact on whether the stock can turn itself around.
In sum, this was another difficult quarter for BBBY, with weak comps and tepid guidance being the main problems weighing on the report. This company is clearly in transition, and it's not entirely clear that it can achieve a successful turnaround. The vision from whomever it hires as the next CEO will have a big effect on how investors view BBBY's turnaround potential.