Dive Brief:

• Bed Bath & Beyond on Wednesday reported third quarter net earnings were 44 cents per diluted share or $61.3 million (down from 85 cents or $126 million in the year-ago quarter) on net sales of $2.95 billion, from $2.96 billion last year, besting the forecast from FactSet cited by Marketwatch for 38 cents per share on sales of $2.9 billion. 

• Same-store sales were relatively flat, with a 0.3% decline in the quarter — reflecting a decrease in the number of transactions in stores, partially offset by an increase in average transaction amount, and reflecting "strong growth" from e-commerce and a low single-digit percentage decline in sales from stores, according to a company press release. That beat FactSet's expectations for a 2.4% same-store sales decline.

• Gross margin for the quarter was approximately 35.2% of net sales, down from 37% in the third quarter of last year, primarily due to a decrease in merchandise margins, an increase in coupon redemptions and average coupon amount, and an increase in net e-commerce shipping expense, the company said.

Dive Insight:

Despite muscling past analyst expectations with its third quarter numbers, Bed Bath & Beyond shares dropped some 13% Thursday as investors worried it wouldn't perform well over the holiday season.

CEO Steven Temares said that the retailer, well aware of the tricky retail environment and changing consumer expectations, is working to ensure that its stores offer a treasure hunt atmosphere. Pricing (which is dynamic in e-commerce to protect both competition and margins) is bring drilled down on commodity items, but the company is working hard to differentiate its merchandise in order to avoid heavy discounts.

"Treasure hunt is represented in the differentiated mix of merchandise consisting of product that is new, fresh and/or has limited availability," he told analysts, according to a transcript from Seeking Alpha. "These types of products exist across many of our categories, including furnishings and decor and our seasonal departments. Going forward, we plan to put a greater emphasis on these elements in our Bed Bath & Beyond stores and incorporate our successes from across all of our retail concepts to more fully leverage them."

Bed Bath & Beyond stores will be "noticeably different" beginning in March, he also said, with less space dedicated to core Bed Bath & Beyond merchandise in favor of "show more, carry less initiatives," like more appealing display.

While acknowledging the challenges in retail these days, though, Temares also reminded analysts that the company has endured where others have failed, noting that department stores and specialty retailers like Linens 'n' Things abandoned the category or went out of business. "They didn't do it. We did the same thing and we made some of the best returns in retail," he said of the last quarter century or so.