Bed Bath & Beyond falls behind with 'grim' results

Dive Brief:

Bed Bath & Beyond on Wednesday reported that second quarter net sales were flat year-over-year, reaching about $2.9 billion. Net earnings in the quarter were $48.6 million, down from $94.2 million in the year-ago quarter as operating profit tumbled to $78.9 million from $168.8 million a year ago.
Comparable sales, including in-store sales and "strong sales" from e-commerce, fell by 0.6%, according to a company press release. That included strong sales growth from the company's digital channels and sales from stores that declined in the mid-single-digit percentage range.
The retailer slightly reduced its net sales model for the fiscal year, with comparable sales to be relatively flat to last year, according to the release.

Dive Insight:

In light of a quarter that showed little sign of correction, Bed Bath & Beyond executives on Wednesday kept their focus on the positive and asked for patience for better results in the longer term.

"There are no shortcuts for long-term success," CEO Steven Temares told analysts, according to a conference call transcript from Seeking Alpha.

Wells Fargo analysts led by Zachary Fadem said, on a positive note, that inventory declined another $100 million, which is driving improved inventory turns and working capital, but lowered fiscal year earnings estimates. But, "Q2 results were disappointing and with a lowered FY18 outlook and little benefits materializing from investments, we see few signs of longer-term visibility improving," Fadem said in a note emailed to Retail Dive.

The retailer's famous blue coupons continue to bedevil its performance. The main drivers for gross margin in the quarter were an increase in those coupons, a decrease in merchandise margins and an increase in shipping expenses, CFO Robyn D'Elia told analysts.

But GlobalData Retail Managing Director Neil Saunders called the results "grim" in comments emailed to Retail Dive. "At total level, the company has not managed to advance sales at all," he wrote. "Meanwhile, on the bottom line, operating profit has more than halved."

It's all the worse considering the robust economy and rising spending in Bed Bath & Beyond's core home goods segment, he warned. "Framed in this way, the numbers are little short of terrible and underscore the myriad of missteps Bed Bath & Beyond is making," he said. "The blunt truth is that Bed Bath & Beyond simply hasn't been up to the job of converting the momentum seeing elsewhere in retail into its own commercial success."

Executives called out the success of the company's revamped loyalty program, first launched in September 2016. BEYOND+ members shop 2.5 times more than the retailer's average customer and generate four times higher revenue, Temares said, adding that the company continues to learn from the program's results to glean how to modify it. He expects about 1 million loyalty members by year's end.

The company is also testing an "enhanced Decorative Furnishings" offering, which includes the opportunity to shop in store for home delivery. That pilot's sales grew in the mid single-digits above non-pilot stores, Temares said. The company's higher end One Kings Lane unit is also launching a custom furniture offer, with an ability to personalize prints and patterns online at accessible prices and short lead times.

But the company is struggling to differentiate itself at a time when several other retailers, including Target, TJX's Home Goods, Amazon and Wayfair are all making their own plays in the same segment, Saunders said.