Bed Bath & Beyond Takes Another Beating

by Alyssa Oursler | September 20, 2012 2:46 pm

Just a week ago, Pier 1 Imports (NYSE:PIR[1]) continued its climb from the depths of the fiscal crisis with second-quarter results that kept up a long string of revenue and earnings growth. Investors, though, shrugged off the news[2].

… a reaction Bed Bath & Beyond (NASDAQ:BBBY[3]) would’ve been happy with today.

Pier 1′s peer in the home furnishing world has been on a similar trajectory since 2008 and actually bested its sectormate with 14 consecutive quarters of both revenue and earnings growth thanks to its Q2 performance.

In the second quarter, sales jumped 12% to $2.59 billion, beating analysts calls for revenue of $2.56 billion. Earnings also saw solid — though not stellar — gains of 5% at 98 cents per share.

Unfortunately, analysts wanted a little bit more — 4 cents per share more, to be exact. And while investors underreacted to Pier 1′s steady performance last week, they jumped to the other extreme today, shredding BBBY shares almost 9% in late Thursday trading.

Investors reacted similarly after Bed, Bath & Beyond’s last report, knocking shares down 17% in late June after learning that sales missed expectations, margins fell and same-store sales were down year-over-year. However, the past three months had seen the stock all but correct that early-summer punishment.

This time around, BBBY might not be so lucky.

To start, the company was plagued with falling same-store sales yet again — quite the black eye. The result’s not necessarily surprising — with few exceptions, brick-and-mortar retailers have been hit not only by slow consumer spending, but also by the growing online behemoth that is Amazon (NASDAQ:AMZN[4]), as well as others.

Even getting consumers in the store was a chore: Bed Bath & Beyond had to rely on countless coupons, which took their toll on margins.

Of course, investors also might be losing faith in the idea that BBBY’s recent acquisitions can offset such a slowdown at its brick-and-mortar stores. See, earlier this year, Bed Bath & Beyond made two pick-ups — Cost Plus Inc. (World Market), marking the biggest move in BBBY’s history, and privately owned Linens Holding Co.

The deals had plenty of initial merit. The first purchase gave the company ownership of private label brands and designs, along with a popular food selection, while the second added a distributor of bath, bed and table linens, other textile products and amenities to a variety of industries to its arsenal.

In fact, analysts were optimistic last quarter in the face of both slowing sales and the subsequent sell-off. Antoine Gara at The Street[5] said that, as the company was “faced with less-than-stellar comparable store sales and earnings, the strategic benefits of the acquisition may be all the more clear.”

Fast-forward a quarter, though, and that same acquisition is not only included in BBBY’s financials for the first time, but actually is being cited as one of the reasons that margins took a hit. That gives investors little to hold onto, which is why their latest flee from the stock might not be so readily reversed.

BBBY remains up 10% year-to-date despite the past two post-report hits, but the stock has seemingly lost all direction. And without results to justify the acquisitions yet, Bed Bath & Beyond looks a little lost. A big-box home goods store with falling same-store sales and slipping margins that now owns some additional nice brands and distributes linens to cruise ships?

That’s not horrible, but “not horrible” is far from good — and plenty of justification for an investor rush to the exit doors.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

Endnotes:
  1. PIR: http://studio-5.financialcontent.com/investplace/quote?Symbol=PIR
  2. shrugged off the news: http://investorplace.com/2012/09/pier-1s-comeback-aint-over-yet-pir/
  3. BBBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBBY
  4. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  5. Antoine Gara at The Street: http://www.thestreet.com/story/11591659/1/investors-shun-bed-bath-beyond-walgreens-growth-deals.html

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