Bed Bath & Beyond – Watch and Wait

BBBY : NASDAQ : US$79.68
HOLD 
Target: US$73.00

COMPANY DESCRIPTION:
Bed Bath & Beyond sells a wide assortment of merchandise including home furnishings, domestics, giftware, health and beauty care items, and infant and toddler merchandise. BBBY operates around 1,010 Bed Bath & Beyond stores, 270 Cost Plus World Markets, 75 Christmas Tree Shops, 85 buybuy BABY locations, and 50 Harmon stores.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Specialty Retail
CHALLENGES PERSIST IN Q4
Investment recommendation
BBBY’s Q3 EPS of $1.12 was $0.03 below our estimate and consensus. Q3 SSS increased 1.3% on top of +1.7% versus our +3% forecast. Higher couponing and mix shift led to a 60bps gross margin decline, worse than our -13bps forecast. Items below the EBIT line added $0.02 compared to our forecast. We downgraded shares to a Hold rating on 10/30/13, and we remain concerned about retail traffic trends and heavy couponing. BBBY reduced Q4 EPS guidance by $0.10 to $1.60-$1.67 after December transactions fell short of expectations. We remain on the sidelines with shares trading at 14x our FY14 EPS estimate and 8x FY14E EV/EBITDA based on the after-hours quote of $73.
Investment highlights
 We believe BBBY suffered its first market-share loss since the World Market acquisition in Q2/12. Based on home furnishings sales as reported by the U.S. Census Bureau, we calculate BBBY’s share slid 19bps to 22.3%.
 Weaker sales and greater margin pressure push our Q4 EPS estimate $0.16 lower to $1.64, versus prior consensus of $1.78. We lowered our Q4 SSS forecast 150bps to +2% on top of +2.5%. We reduced our gross margin outlook by 30bps and raised our SG&A expense rate forecast by 50bps.
 Our price target moves from $84 to $73 based on our updated DCF model.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s