Bed Bath & Beyond Inc. (BBBY - Get Rating) operates as a retail store chain. The company sells domestic merchandise, bath items, kitchen textiles, and home furnishings through various websites and applications.

The company’s shares are down 60.3% over the past year and 59.1% year-to-date to close its last trading session at $5.97. In addition, the stock is currently trading 80.1% below its 52-week high of $30.06.

BBBY’s diminishing growth and poor financials have made investors pessimistic about the company’s prospects. Moreover, the company continues to witness weak growth across its segments, majorly impacted by changes in customer preferences, persistent inflation, and supply-chain disruptions.

The company released its second-quarter results report, missing top, and bottom-line estimates. Comparable sales plummeted 26%, and revenue fell 28% to $1.44 billion, falling short of the consensus estimate of $1.47 billion. On the bottom line, it posted an adjusted per-share loss of $3.22, significantly below the analyst projection of $1.85.

Here’s what could shape BBBY’s performance in the near term:

Inadequate Financials

BBBY’s revenue decreased 27.6% year-over-year to $1.44 billion for the third quarter ended August 27, 2022. Its gross profit declined 33.7% from the prior-year quarter to $398.26 million. The company’s operating loss increased 311.6% from the year-ago value to $246.20 million. Its net loss surged 400.1% year-over-year to $366.16 million. Its adjusted loss per share amounted to $3.22.

Negative Profit Margins

BBBY’s trailing-12-month gross profit margin of 29.5% is 19.1% lower than the industry average of 36.4%. Also, its trailing-12-month ROA, net income margin, and ROE are negative 24.8%, 16.9%, and 650.3%, respectively. Moreover, its trailing-12-month negative EBITDA margin of 5.1% compares to its industry average of 11.3%.

Poor Growth Estimates

Street expects EPS and revenue to decline 704.6% and 23.3%, respectively, in the current fiscal year. Also, its EPS is expected to remain negative in the current and next year. In addition, BBBY failed to surpass the consensus EPS estimates in three of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Downside

Of the 12 Wall Street analysts that rated BBBY, nine rated it Buy, and three rated it Hold. The 12-month median price target of $4.28 indicates a 28.4% potential downside. The price targets range from a low of $2.00 to a high of $7.50.

POWR Ratings Reflect Bleak Outlook

BBBY has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 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 an F grade for Stability and Sentiment and a D for Quality. Its beta of 1.57 is consistent with the Stability grade. Analysts’ poor ratings and price targets justify the Sentiment grade. In addition, its poor profitability is in sync with the Quality grade.

Of the 62 stocks in the C-rated Home Improvements & Goods industry, BBBY is ranked #58.

Beyond what I’ve stated above, you can view BBBY ratings for Growth, Momentum, and Value here.

Bottom Line

BBBY has been on a downtrend lately. The stock is currently trading below its 50-day and 200-day moving averages of $9.08 and $12.39, respectively, indicating bearish sentiments. In addition, its shares could slide further, given the persistent macroeconomic uncertainties that may hinder its growth.

So, given its weak financials and poor growth attributes, we think the stock might be best avoided now.

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

While BBBY has an overall F rating, one might want to consider its industry peers, Acuity Brands Inc. (AYI - Get Rating), which has an overall A (Strong Buy) rating, and Masonite International Corp. (DOOR - Get Rating), and The Tile Shop Holdings Inc. (TTSH - Get Rating), which have an overall B (Buy) rating.

BBBY shares were trading at $5.88 per share on Thursday afternoon, down $0.09 (-1.51%). Year-to-date, BBBY has declined -59.67%, versus a -20.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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