Bed Bath & Beyond Earnings Preview: Pessimism Could Lead to a Positive Surprise

After a horrid second quarter for BBBY stock, the situation is so bad that's it's good

Investors in retail icon Bed Bath & Beyond (NASDAQ:BBBY) are by now well aware of the sector’s adverse market conditions. Even prior to the onset of the novel coronavirus, BBBY stock holders suffered slow, steady losses. Will this downtrend continue after the upcoming earnings release?

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Scheduled for July 8 after the close of the stock market, Bed Bath & Beyond’s fiscal first-quarter earnings report will provide a snapshot of a challenging time for the American retail sector.

Amazon’s (NASDAQ:AMZN) threat to brick-and-mortar retail chains was already a problem. The coronavirus only exacerbated this issue for Bed Bath & Beyond as more people chose to shop online.

In this earnings preview, we’ll take a close look at the expectations surrounding Bed Bath & Beyond’s highly-anticipated earnings announcement. With that, hopefully you’ll have a clearer idea of whether buying BBBY stock prior to earnings is a good move.

A Closer Look at BBBY Stock

From a technical standpoint, the coronavirus crisis was another leg down in a prolonged series of declines for BBBY stock. The carnage commenced in 2015, when BBBY began its painful and protracted retreat from the $76 level.

At this point, it’s conceivable that BBBY shareholders won’t see that peak price during the next several years, if at all. Even the short-term rally witnessed at the end of last year wasn’t sustainable. BBBY stock managed to reach $17 in December, but by April it was trading below $4 per share.

On the other hand, BBBY stock clawed its way back up above the key $10 price point over the past three months. That should provide some encouragement to struggling BBBY shareholders. If the upcoming earnings release is largely positive, the bulls might have a reason to believe that the stock will retake December’s $17 peak price at least.

Preserving Liquidity

During the company’s fourth-quarter earnings call, Bed Bath & Beyond effectively admitted that all is not rosy in the world of retail. By April 23, all of the company’s stores were temporarily shuttered with the exception of the Buy Buy Baby and Harmon Face Values stores.

And by April 2, those temporary store closures had been extended for another month. Needless to say, Bed Bath & Beyond wasn’t having a wonderful quarter.

Shareholders can take some comfort in the company’s responsiveness during this time. Indeed, a number of critical liquidity-preserving measures were implemented:

  • Postponement of $150 million in planned capital expenditures for fiscal-year 2020
  • Suspension of prior plans for share repurchases for fiscal-year 2020
  • Temporary 30% reduction of salaries for the senior executive team
  • Temporary 30% reduction of quarterly cash compensation for the board of directors
  • Furloughs of the majority of store associates and some corporate
  • Reduction in discretionary spending on business travel and advertising

These measures, while not a comprehensive solution to the Covid-19-induced problems, should reflect well on Bed Bath & Beyond as the company soon reveals its fiscal data and guidance.

Acknowledging the Damage

Even with those cost-cutting measures in place, few traders are expecting blockbuster results during the upcoming earnings release. Muted expectations could benefit BBBY stockholders, however, as this might be a setup for a positive surprise.

Is Bed Bath & Beyond using reverse psychology to position BBBY stock for post-earnings upside? Such an argument could be made as the company admitted that the “unparalleled challenge of the COVID-19 pandemic has significantly impacted” Bed Bath & Beyond’s operations during the company’s fiscal second quarter.

Call it a slick trick or a savvy move, but acknowledging the tremendous fiscal impact of the coronavirus might be Bed Bath & Beyond’s best gambit as the market positions itself for what could be a make-or-break data release.

The Bottom Line

Up or down, the post-earnings move in the BBBY stock price is likely to be swift and sizable. And with the company admitting its troubles and setting the market up for a nice surprise, the short side of the trade is probably not the right one.

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

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