Shares of Bed Bath & Beyond rose 4% on Wednesday after the home goods retailer reported earnings that beat Wall Street expectations and sales in line with analyst forecasts.
Bed Bath & Beyond's net sales in the quarter rose 3.4% to $3.5 billion from $3.4 billion in the year-ago period. Net earnings of $1.84 per diluted share topped Thomson Reuters analyst expectations of $1.78 per share on quarterly sales of $3.51 billion. Same-store sales rose 0.4% in Q4, compared to the year-ago increase of 1.7%; same-store online sales rose more than 20% while same-store physical sales fell in the low single-digit percentage range, according to a press release.
Full-year net sales rose 0.9% to approximately $12.2 billion, from about $12.1 billion last year. Full-year same-store sales fell 0.6% compared to a 1% increase last year; same-store e-commerce sales increased more than 20% while same-store sales from physical stores declined in the low single-digit percentage range for the fiscal full year. For fiscal 2017, Bed Bath & Beyond is forecasting an earnings decline in a percentage range of low-single digits to 10%.
Bed Bath & Beyond is struggling in stores, and even its e-commerce sales rise carries a negative side, considering that its fulfillment costs are higher. That’s especially true since the retailer lowered its free shipping threshold to $29, a level that CEO Steven H. Temares defended in a Wednesday conference call with analysts. “[W]e have pretty much looked at it and modeled it at $29 for the year… right now, our assessment is that it's pretty much a sweet spot, but we are always looking at the competition,” Temares said, according to a transcript of the call from Seeking Alpha, adding that the threshold is likely to get a boost back up to $49 at some point.
While that approach may be driving online sales, it’s hurting profits, noted GlobalData Retail analyst Håkon Helgesen. Bed Bath & Beyond's 13.8% profit decline is “in large part the result of the imbalance in channel growth,” Helgesen said in a note emailed to Retail Dive. And as the retailer gets more ambitious about becoming a home decor destination via the purchase of One Kings Lane and online interior design site Decorist, its stores are not delivering on that promise.
“As good as these things are, and as much as we believe they are addressing shifts in consumer preferences, we have concerns that there is a growing dissonance between BBB's online and physical strategies,” Helgesen said. “This may not be as much of a problem for distinct brands like Decorist, but it is for the core Bed Bath & Beyond brand. As the company pushes into new categories, like furniture, and tries to become a destination for all things ‘home,' it is imperative that all channels work to communicate this to customers. At present, stores largely do not contribute to this the new brand vision.”
Helgesen said that disconnect is becoming especially important in light of recent elevation in competition in the space, citing the threat posed by off-price juggernaut TJX Cos., which earlier this year announced a new home decor chain concept and an expansion of its existing Home Goods chain.
“Even Target's refresh of existing stores will ultimately add competitive pressure in the home retail market. The blunt truth is that against these developments, BBB's stores are found wanting,” he said. “[W]hile BBB is doing many of the right things, it is not yet executing its strategy in a cohesive way. Ultimately this will result in the continued decline of stores, which means they will not be able to counterbalance the profit erosion from online growth. This bodes badly for the bottom line, and it also means that Bed Bath & Beyond will feel more heat from rising competitive pressures over the next few years.”