Bed Bath & Beyond Inc. BBBY came out with second-quarter fiscal 2020 results wherein both the top and bottom lines surpassed the Zacks Consensus Estimate. Results reflect gains from robust digital growth, courtesy of its BOPIS and contactless curbside-pickup facilities. Keeping in these lines, the latest introduction of same-day-delivery service is likely to aid the top line further. Apart from these, stringent cost-cutting actions and strong financial position contributed to quarterly growth.
Moving on, all its stores resumed operations by early July. However, it refrained from providing any fiscal 2020 outlook, given the continued uncertainty of the pandemic.
Q2 in Detail
Bed Bath & Beyond reported adjusted earnings of 50 cents per share for fiscal second quarter, up 47% from 34 cents reported in the year-ago quarter. Moreover, the figure came ahead of the Zacks Consensus Estimate of a loss of 17 cents. This uptick was mainly attributed to improved margins and lower expenses.
Net sales came in at $2,688 million, down 1.1% year over year, owing to the sale of One Kings Lane business. However, it surpassed the Zacks Consensus Estimate of $2,613. Moreover, digital sales rose roughly 88%, accounting for approximately 32% of total sales. Several omni-channel services, such as Buy-Online-Pick-Up-In-Store and Curbside Pickup contributed to digital sales growth. Evidently, BOPIS now accounts for more than 15% of total digital sales. Speaking of its ship-from-store facility, the company’s stores have fulfilled roughly 36% of total digital orders during the quarter under review. Driven by its strong omni-channel capabilities, Bed Bath & Beyond witnessed nearly 2 million new online customers in the quarter. On the flip side, in-store sales fell 18% in the reported quarter.
During the quarter, comparable sales (comps) grew nearly 6% year over year, marking the first sales growth since fourth-quarter fiscal 2016. This can be attributed to strong digital comps of roughly 89%, somewhat offset by soft store comps to the tune of nearly 12%. Encouragingly, comparable sales, along with store and digital sales, retained momentum in September.
Adjusted gross profit advanced 4.8% to $964.5 million in the reported quarter. Moreover, adjusted gross margin expanded 200 basis points (bps) to 35.9% on positive product mix, higher markdowns, better promotions, as well as lower distribution and fulfillment costs. On the flip side, adverse digital channel mix stemming from elevated shipping expenses acted as a deterrent.
Adjusted SG&A expenses fell 1.4% to $846.5 million, driven by cost-cutting actions and impacts of COVID-19. Meanwhile, adjusted SG&A, as a percentage of sales, contracted 10 bps to 31.5% in the reported quarter.
Further, the company incurred an operating loss of $270.5 million against operating loss of $182.3 in the year-ago quarter.
Bed Bath Beyond Inc. Price, Consensus and EPS Surprise
Bed Bath Beyond Inc. price-consensus-eps-surprise-chart | Bed Bath Beyond Inc. Quote
Bed Bath & Beyond ended fiscal second quarter with cash and investments of roughly $1.4 billion. Long-term debt totaled $1,190.2 million and total shareholders’ equity was $1,697 million as of Aug 29, 2020. In fiscal second quarter, cash provided by operating activities came in at $543.5 million along with nearly $37 million in capital expenditures.
Moreover, its share-repurchase plan and dividends remain suspended. The company lowered gross debt by roughly $500 million via bond offer and loan repayment. That said, management boasts liquidity of nearly $2.2 billion driven by solid cash flow to the tune of more than $750 million and $850 million secured asset-based lending facility.
Bed Bath & Beyond noted that it successfully completed the sale of PersonalizationMall.com in early August for roughly $245 million. Further, the company has joined hands with Shipt to launch same-day delivery facility. Notably, customers with annual Shipt membership can avail free delivery for orders above $35. For online orders at bedbathandbeyond.com and buybuybaby.com, this option is available for orders above $39 at a flat fee of $4.99.
The company intends to expedite its comprehensive restructuring program in a bid to achieve improved profits over the next two-three years. In this regard, adjusted EBITDA is anticipated to be $250-$350 million. Alongside this, it expects SG&A savings of $85 million from the strategic restructuring program announced in February 2020. Out of these cost savings, management intends to reinvest roughly $150-$200 million in future initiatives.
Apart from these, its earlier-announced Store Network Optimization project, wherein almost 200 Bed Bath & Beyond stores are estimated to be shut down in the next two years, is expected to generate savings of nearly $100 million on an annual basis. Keeping in these lines, 15%-20% of the loss in sales from these stores are likely to be transitioned to its digital platforms.
Additionally, cost-cutting actions and reduced discretionary costs, along with renegotiations with existing vendors, are predicted to realize savings of nearly $150 million and $200 million, respectively.
In the said quarter, the company launched its 128th baby store and recently opened another in September. Going ahead, the company expects to open three more stores by the end of 2020, bringing the total number of baby stores to 132.
We note that this Zacks Rank #2 (Buy) stock has surged 91.5% in the past three months compared with the industry’s 15.2% growth.
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