Bed Bath & Beyond (NASDAQ:BBBY) reports earnings on Wednesday September 21. The company, which was established in 1971 was initially geared toward homeowners who want higher quality products ranging from the bedroom and bathroom, as well as the kitchen and dining room. The company began operating with brick-and-mortar store fronts. However in this new age economy, they have had to modify their business practices to include online and mobile purchase ability for customers.
The shares are trading about 30% off of their recent 52-week highs. This is usually indicative of a company that is struggling to meet analyst’s expectations for their earnings. Shares have traded in a 52-week range from $41.02 to $62.42. The short float however is only roughly 10%. This means that only 10% of the outstanding shares are available to trade or actually short. That leaves the other 90% to be owned by insiders, headphones, mutual funds, and the general investing public.
Wall Street Expectations
Traders are showing caution on Bed Bath & Beyond’s next quarterly results. An options trading powerhouse operated by the Najarian Brothers, optionMONSTER’s monitoring program, shows that 1,500 Weekly 43 puts expiring on Sept. 23 were purchased for $0.93 Monday. This is clearly fresh buying, as open interest in the strike was only 203 contracts before the trades appeared.
Long puts lock in the price where a stock can be sold, so they make money if shares decline. Investors use them to hedge long positions or to speculate on a drop.
Weak same-store sales numbers also led it to lower its same-store sales guidance to 0-1% from 1%-2% for fiscal 2016, which ends next May. Even if it beats expectations, it will be beating lowered expectations. For the coming quarters, and even years, analysts don’t expect the stock to deliver stellar numbers. Over the next half a decade, annual earnings growth is expected at just 4.1%, which is one-third the industry’s expected growth rate and less than half the amount expected for the S&P 500.
Analyst’s Comments
Morningstar equity analyst Jaime Katz cut Bed Bath’s fair value estimate in June after the company’s first-quarter results left its competitive positioning in question. Specifically, the physical store-based home retailing business continues to experience pressure from online peers such as Amazon.com (NASDAQ:AMZN), which can undercut in price and speed and offer a more user-friendly mobile or web experience, Katz said. However, Bed Bath still has a lot going for it, in Katz’s opinion: It has a best-in-class decentralized merchandising strategy, untapped international growth opportunities, and widely recognized retail brands like the namesake Bed Bath & Beyond, Buybuy Baby, Harmon and Cost Plus World Market concepts. We do not believe Bed Bath & Beyond has an economic moat, given the brand’s limited pricing power, nonexistent consumer switching costs, and unsustainable cost advantages (such as higher and more frequent coupon redemptions and costly free shipping). And though competition from mass merchants and online retailers will likely remain a headwind, Katz points out that the company should continue to benefit from rising housing market prices.