Domestic merchandise retail chain Bed Bath & Beyond Inc. (BBBY) is widely known for selling home furnishings, bath items, bed linens, and related items, through various websites, including bedbathandbeyond.com, bedbathandbeyond.ca, and harmondiscount.com. The omnichannel retailer is scheduled to release its fiscal 2022 first-quarter financial results on June 29.

Shares of BBBY plummeted 52% so far this year and 10.4% over the past month as the company continues to bear the brunt of a drop in discretionary merchandise spending, with the U.S inflation hitting a fresh four-decade high. Furthermore, as global supply chain issues and surging costs continue to hammer its financials, the retail chain operator’s first-quarter earnings could take a hit.

Also, the company has been taking measures to postpone store remodels and reduce store hours to cut expenses. This could negatively impact its sales and lead to negative investor sentiment. Moreover, BBBY’s inventory availability challenges and rising liquidity concerns could result in the stock witnessing a further pullback in the near term.

Here is what could influence BBBY’s performance in the upcoming months:

Macroeconomic Headwinds

As consumers continue to face stiff headwinds from surging inflation, retail sales turned negative in May. Furthermore, the Federal Reserve raised interest rates by three-quarters of a percentage point, the biggest increase since 1994. Falling consumer sentiment and a decline in demand could keep the merchandise retailer’s stock under pressure.

Also, escalating supply chain costs and key items held in port remaining abnormally high could negatively impact its margins in the near term.

Weak Financials

BBBY’s net sales declined 22% year-over-year to $2.05 million in the fourth quarter ended February 26, 2022, mainly due to a decline in core sales by 14%. Its comparable-store sales declined 12% year-over-year due to a drop in Bed Bath & Beyond banner and buybuy BABY comparable sales.

Also, the company’s adjusted gross margin came in at 28.8% for this quarter, representing a decline of 400 basis points year-over-year.

BBBY reported an adjusted EBITDA of a negative $30 million and an operating loss of $165 thousand. Its net decrease in cash and cash equivalents came in at a negative $69.56 thousand.

Bearish Analyst Sentiment

According to Bank of America analysts, the domestic merchandise retail chain has been turning down the air conditioning at its stores and reducing store hours to cut costs due to declining comps. Additionally, the company is canceling or postponing store remodels.

According to a recently released MarketWatch report, Bank of America analysts led by Michael Lasser stated, “We believe rapid inflation, falling consumer sentiment, demand pull-forward, and supply disruption likely drove significant pressure on Bed Bath & Beyond’s 1Q results.”

Negative Profit Margin

Its trailing-12-month ROE, ROA, and ROTC are negative 77.1%, 10.9%, and 1.3%, respectively. Also, the company’s trailing-12-month gross profit margin of 33.3% is 8.1% lower than the industry average of 36.3%. Furthermore, BBBY’s trailing-12-month net income margin stood at a negative 7.1%.

POWR Ratings Reflect Bleak Prospects

BBBY has an overall rating of D, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. BBBY has a C grade for Quality. The stock’s lower than industry gross profit margin is in sync with this grade.

The company has a Stability grade of F, consistent with its relatively high beta of 1.83. In terms of Sentiment Grade, BBBY has an F. Bearish analyst sentiment surrounding the stock is consistent with the grade.

In addition to the grades I’ve highlighted, one can check out additional BBBY ratings for Growth, Momentum, and Value here. BBBY is ranked #56 of 63 stocks in the C-rated Home Improvement & Goods industry.

Bottom Line

Macroeconomics factors, including the disruption of the global supply chain and record low consumer confidence amid inflation, could continue to weigh heavy on BBBY’s shares. Moreover, declining demand for merchandise categories as consumers cut down on discretionary spending could make investors nervous about the stock’s prospects.

Thus, we think BBBY is best avoided now.

How Does Bed Bath & Beyond Inc. (BBBY) Stack Up Against its Peers?

While BBBY has a D rating in our proprietary rating system, one might want to consider taking a look at its industry peer, Acuity Brands, Inc. (AYI), which has an A (Strong Buy) rating, and Bassett Furniture Industries, Incorporated (BSET), which has an overall B (Buy) rating.

BBBY shares were trading at $6.62 per share on Monday afternoon, down $0.38 (-5.43%). Year-to-date, BBBY has declined -54.60%, versus a -17.23% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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