Bed Bath & Beyond (BBBY), the home furnishings giant, is trading lower (-7%) this morning after reporting Q1 (May) earnings results after the close yesterday. Our sense is that the negative comp performance is worrying investors that perhaps BBBY will not be able to meet its goal of positive same store comps this fiscal year.
Everyone is familiar with Bed Bath & Beyond (BBBY), but some details are probably not well known. The company operates a chain of retail stores under the names Bed Bath & Beyond in the US and Canada. The company sells a wide assortment of products, including bed linens, bath items, kitchen textiles, home furnishings, housewares etc. It also operates other chains, including Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon, Harmon Face Values or Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus.
In addition, the company operates Of a Kind, an e-commerce website that features limited edition items from emerging fashion and home designers; One Kings Lane (acquired in June 2016), an authority in home décor and design, offering a unique collection of select home goods, designer and vintage items; PersonalizationMall.com, an online retailer of personalized products; Chef Central, an online retailer catering to cooking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services.
The company also operates Linen Holdings, a provider of a variety of textile products serving the hospitality, cruise line, healthcare and other industries. Additionally, the company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond. BBBY currently has a total of 1,557 stores, including 1,017 Bed Bath & Beyond stores, 279 stores under the names of World Market, Cost Plus World Market or Cost Plus, 121 buybuy BABY stores, 83 stores under Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, and 57 stores under the names Harmon, Harmon Face Values or Face Values.
Just a word on One Kings Lane, which is an online retailer of furniture, home goods, designer and vintage items. One Kings Lane operates using a flash sales model where items on heavily discounted for a limited time. They also offer complimentary interior design services at two design studios located in San Francisco and New York. BBBY sees One Kings Lane as serving as a cornerstone for Bed Bath & Beyond's growing offerings in furniture and home décor.
Turning to the Q1 (May) results, Bed Bath & Beyond reported non-GAAP EPS of $0.38, which backs out $0.06 in severance costs. Revenue rose 0.4% YoY at $2.75 bln. The EPS was above market expectations although it's a bit unclear with that severance cost issue. Revenue was in-line. BBBY reaffirmed guidance for FY19, continues to see EPS of low-to-mid $2.00 range.
MayQ same store comps came in at -0.6% which was identical to the -0.6% reported in FebQ. The quarters before that have been: -0.3% comp in NovQ, -2.6% in AugQ and -2.0% comps in MayQ last year. So as you can see comps are slowly trending higher but still not great. Comps included strong sales growth from the company's customer-facing digital channels while comps from stores declined in the mid-single-digit range. This language was identical to what BBBY said when it reported FebQ results so that trend is continuing.
On the call, management said its MayQ performance was in line with expectations and BBBY remains on track with its modeling assumptions, which include achieving comp sales growth beginning this year; to achieve moderating declines in operating profit and EPS this year and next; and to achieve growth in EPS by 2020.
Boosting its decorative furnishing segment is a key initiative for BBBY to boost sales. It's not only for the revenue growth opportunity, but more importantly to further establish BBBY as the trusted expert for the whole home. Decorative furnishings include furniture, lighting, rugs, art, mirrors and wall décor. The goal is to have an expansive online assortment which is priced competitively against its digital competitors. It's still in the early stages, but despite that, BBBY is beginning to see some positive results.
In sum, investors are not too happy with BBBY's MayQ results/comps. While it was good to hear that BBBY reaffirmed its prior guidance of same store comp growth this fiscal year, the fact that it was negative in Q1 (May) was a bit of a concern. Perhaps it's creating some doubt that comps will actually grow this year.
However, it's still very early, just one quarter. Let's see how Q2 (Aug) comps perform before getting too worried. The stock was under pressure for much of 2017 and has generally been trending lower since September. The hope is BBBY can start to right its ship this fiscal year. From a broader perspective, BBBY is in a tough spot competing with online rivals like AMZN. On a final note, with Pier One (PIR -21%) down big today on earnings and with BBBY trading lower, keep an eye on home décor peers: HOME, WSM, KIRK, W, ETH, RH, TCS, SHOS, HOFT.