You’d be forgiven for taking a look at
Bed Bath & Beyond’s (NASDAQ: BBBY) chart and thinking that “what goes up, must come down”. After riding the Reddit fuelled meme stock wave to the stratosphere several times this year already, their shares opened down close to 30% yesterday after the company reported Q2 earnings. A fall of that kind in and of itself is bad enough, but when it also meant that
shares were down 70% from their 52 week high, it took on another dimension.
The catalyst for the drop was, as mentioned, the latest earnings report from the New Jersey headquartered home merchandise retailer. Overall, the report made for grim reading, and even the most optimistic investor was given cause for concern.
Bad Misses
Both topline revenue and bottom line EPS came in short of where analysts were expecting, the former doing so as it contracted 26% year on year. The consensus for the latter had been to be firmly in the black with a $0.53 print, but instead it came in at -$0.72. Understandably so, many investors couldn’t dump them quick enough at yesterday’s open.
Management took aim at what they called “unprecedented supply chain challenges” which impacted their sales in key states. Faster than expected inflation growth also played a part in the heavy miss, and management saw fit to lower their guidance for Q3’s revenue and EPS.
The company’s CEO, Mark Tritton, was able to bolster the case for investors remaining patient, and in fairness, there was a strong bid seen throughout Thursday’s session which ate into the initial drop. He spoke about how it was "encouraging that we've continued to make progress against the fundamentals of our three-year transformation strategy. Our buybuy BABY banner continued to build on its positive momentum from the past several quarters, growing double digits due to strength in apparel and travel gear and increasing market share for the period. We also celebrated the July re-opening of our Bed Bath & Beyond banner's NYC flagship store in Chelsea as part of our comprehensive store remodel program, which is exceeding our expectations.”
These are certainly nice headline grabbers, but they won’t go very far in making up for the lost revenue of Q2. Tritton did make a point of saying however that their “financial foundation is strong.” They were able to generate positive operating cash flow during the quarter and their cash balance, coupled with a recently amended asset-based revolving credit facility, gives them on-going capital and liquidity strength of $2.0 billion.
On the whole, Tritton felt that they “are well-positioned to continue our planned investments in our business and pave the way towards a more profitable future.”
Potential Opportunity
While shares finished down more than 22% on the day, the glass half full outlook might be that they rallied as much as 15% from their lows. What is certain is that whatever shine shares had that sent them soaring as much as 200% in a matter of weeks at the start of the year is now tarnished. It remains to be seen how permanent this stain will be, but it’s significant for now. Bed Bath & Beyond shares were up marginally in Friday’s pre-market session and how they close out the week will tell us a lot about how they’ll act through October.
Let it not be forgotten that this is a company that B. Riley upgraded to a Buy rating in July on the basis of their fundamentals, not their level of hype on Reddit. At the time they were impressed with the new management team’s progress towards reducing the overall cost structure and turning the company into a premium brand. While Q2 was undoubtedly a poor one compared to the expectations, Rome wasn’t built in a day.
The stock’s RSI is close to 20, suggesting shares are heavily oversold and in fact they closed yesterday’s session right around a long-term support line at $18. If that can be held through next week, there’s probably an argument to be made for taking a long-term punt on management continuing to make a positive difference.
Companies in This Article:
