Bed Bath & Beyond banks on lab stores, private labels for growth
Bed Bath & Beyond on Wednesday reported that third quarter net sales rose 2.6% year over year to approximately $3 billion, according to a company press release. The results included a week after Thanksgiving that fell in the third quarter rather than the fourth, as it did last year.
Comp sales fell about 1.8%, reflecting a decline in store transactions partially offset by an increase in average transaction amount, CFO and Treasurer Robyn D'Elia said during a conference call with analysts, according to a transcript from Seeking Alpha. Digital growth was "strong," but executives declined to give a number; store comp sales fell in the mid single-digit percentage range.
The company has identified about 40 Bed Bath & Beyond stores as working labs to test new assortments, visual merchandising and other aspects of the in-store experience, with 18 already operating and stores opened at least four weeks "contributing to sales and transactions ... [and] performing at a mid single percentage rate better than the rest of our Bed Bath & Beyond stores," CEO Steven Temares said. Another 40, mostly flagship, will shutter next year, and the company plans 20 openings, mostly its buybuy BABY and Cost Plus World Market banners.
Bed Bath & Beyond shares soared some 20% Wednesday with profit results that handily beat investor expectations, a promise to keep profitability in focus and a guidance boost for next year.
The company updated its fiscal 2018 guidance, now estimating that comparable sales for the year will fall about 1% and net earnings for fiscal 2018 to reach about $2 per diluted share, and that fiscal 2019 net earnings will be about the same, D'Elia said.
The trick will be to deliver on plans that were only vaguely outlined in most respects, including transformation of physical stores based on various learnings that will come from new lab stores and the introduction of six private label home decor lines. The first, a new modern farmhouse and cottage furnishings brand called Bee & Willow, will be featured in all Bed Bath & Beyond stores and online, includes some elements available now, with the full assortment for sale by March.
The move follows similar efforts by Target, Walmart and Amazon, which are ahead of the retailer in developing private label furniture and home goods lines. The pivot to focus on profitability could hurt sales: While the company says that the majority of its stores are profitable, for example, 40 are slated to be shuttered.
Executives expressed confidence in its new BEYOND+ loyalty program, which in the quarter undermined gross margin by about 30 basis points and in the first nine months by about 40 basis points. Similarly, adjustments to front-end optimization of its website resulted in "some temporary loss of relevancy in our search result rankings," according to D'Elia. Functionality should be recovered by the middle of March, and the site improvements are boosting conversion, Temares said.
While shares rose, Wells Fargo analysts led by Zachary Fadem expect the gain to be fleeting, deeming the 2019 guidance "optimistic."
"[W]e believe this evening's headline optimism (shares +16% post-close) likely proves short lived," Wells Fargo said in comments emailed to Retail Dive, noting that the retailer's earnings-per-share outlook for fiscal 2018 was lowered by 11%. "Despite shares trending higher tonight, we remain bearish, as top-line growth remains elusive (comps expected negative in FY18/19), profits are declining, and guidance aspirational in our view."
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