Bed Bath & Beyond
Homeware merchandizer, Bed Bath & Beyond, reported 1Q20 results which missed on both the top and bottom lines. Bed, Bath & Beyond is comprised of its own namesake stores as well as Buybuy Baby, Christmas Tree Shops and Harmon Face Values (which specializes in healthcare and beauty products).
Revenue came in at $1.31 billion, a nearly 50% drop from the year-ago quarter.
The company made a net loss of $302.29 million, or $2.44 per share, from $371.09 million, or $2.91 a share, a year ago. Adjusted, to exclude once-off items, the loss per share was $1.96 compared to adjusted net earnings of $0.12 a year ago.
Sales were impacted by coronavirus-induced store closures, with around 90% of stores having remained closed in the quarter. In-store sales declined 77% in the period. The company had to rely on online sales which jumped 82% during the period, and accounted for about two-thirds of 1Q20 sales. The digital channel saw usage increase over 100% in April and May as consumers stocked up on cleaning supplies and home decor.
Margins were squeezed by direct-to-consumer delivery costs, and consumers opting for more low-margin items. Margins were also impacted by greater supply-chain costs and higher expenses for labor and the cleaning of stores. Gross margins fell 7.8% from 34.5% to 26.7%.
CEO Mark Tritton says trends are currently shifting from cleaning supplies, water filters and coffee, to bigger-ticket items like home decor, bedding and accessories for the backyard - which should help profit margins in 2Q20.
The company ended the first quarter with approximately $1.2 billion in cash and investments. And recently secured a new $850 million line of credit. No mention was made as to how it would be used.
The company announced plans to permanently shut 200 of its 1478 stores, in an effort to return to profitability. This should generate annual cost savings of between $250 – $350 million, excluding the related one-time costs for doing so.
There is a risk that non-essential retailers like Bed, Bath & Beyond may have to re-close stores as coronavirus cases spike. Gross margins have declined 3.9% per year on average over the past five years, suggesting low profitability. Free Cash Flows have also deteriorated. The company has taken on additional debt, with the debt-to-equity ratio now at 2.14x from 0.5x in 2019 according to gurufocus. Shares have fallen almost 52% this year. We prefer Amazon.com with its established shipping mechanisms and digital platform, as well as diversified consumer offerings.