Omni channel retailer Bed Bath & Beyond Inc.’s (BBBY) shares soared 263.5% over the past year to close yesterday’s trading session at $27.26 as the demand for household goods such as bed linen, bath items, and kitchen textiles surged amid the COVID-19 pandemic. However, as the economy gradually reopens, the pace of growth might slow down.

The company delivered its 3rd consecutive quarter of comparable sales growth. It reported 4% year-over-year growth in total enterprise comparable sales for the fiscal fourth quarter that ended February 27, 2021. However, its net sales for the quarter declined 15.7% year-over-year to $2.62 billion. Its gross profit came in at $825.49 million in the quarter, down 18.6% year-over-year. BBBY faces intense competition from the likes of Amazon.com, Inc. (AMZN) and Walmart Inc. (WMT). Plus, it is also undergoing a transformation to strengthen its digital presence.

Here are the factors that I think could influence BBBY’s performance in upcoming months:

Positive Developments

In partnership with DoorDash, Inc. (DASH), BBBY launched same day delivery in Canada on April 29, 2021 and in the United States on May 26, 2021.

The company launched Simply Essential on May 10, 2021, which is a product assortment including more than 1,200 products spanning across its top five destination categories — bed, bath, kitchen and dining, and storage and organization.

These initiatives are expected to boost the company’s sales.

Ongoing Transformation

BBBY launched its new private-label brand Nestwell on March 22, 2021 as part of its three-year transformation plan whereby it plans to launch at least eight new Owned Brands in fiscal 2021. It is also expected to remodel roughly 450 stores, enhance the digital-first, omni-always shopping experience, and introduce a modern, 360-degree approach to marketing and customer engagement.

However, the company sold its Cost Plus World Market (CPWM) to Kingswood Capital Management in January 2021 to streamline its portfolio. BBBY also announced the completion of the sale of its Christmas Tree Shops retail banner, its institutional Linen Holdings business, and a distribution center located in Florence, NJ in November 2020 for cash proceeds of roughly $250 million. While the company’s plan seems to be ambitious, it’s still uncertain if it will be able to follow it through.

Poor Profitability

In terms of trailing-12-month EBIT margin, BBBY’s 0.39% is lower than the industry average of 7.28%. The stock’s trailing-12-month net income margin is negative compared to the industry average of 4.25%. Its trailing-12-month return on common equity and trailing-12-month return on total assets are also negative compared to the industry averages of 10.87% and 3.47%.

POWR Ratings Reflect Uncertain Near-Term Prospects

BBBY has an overall grade of C which equates to Neutral rating 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 Growth. This is consistent with analyst expectations. While revenue is expected to increase 34.6% for the about-to-be-reported quarter that ended on May 31, 2021, sales are expected to decline 11.8% in fiscal 2022.

The stock has a C grade for Quality, in sync with its lower-than-industry profitability ratios. Moreover, it has a D grade for Stability.

BBBY is ranked #46 out of 63 stocks in the A-rated Home Improvement & Goods industry. Click here to see BBBY’s ratings for Sentiment, Value and Momentum as well.

Better than BBBY: Click here to access several other top-rated stocks in the Home Improvement & Goods industry.

Bottom Line

BBBY announced several measures to adapt to the ‘new normal’ and strengthen its digital presence. However, these are expected to take time to materialize fully. Also, the company faces intense competition in the retail space. So, before scooping up its shares, it’s wise to wait for the results of the company’s transformation measures.

BBBY shares were trading at $38.33 per share on Wednesday afternoon, up $11.07 (+40.61%). Year-to-date, BBBY has gained 115.82%, versus a 12.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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