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Actionable news in BBBY: Bed Bath & Beyond Inc.,

Bed Bath And Beyond: Very Negative Expectations Priced In, Probable Asymmetric Risk/reward


Bed Bath and Beyond has particularly suffered in the last couple years, for a combination of factors that includes currency effects and rising competition.

The company needs to grow in its online segment to face competition from online players such as Amazon.

Current price implies a very negative scenario for the company, and probably gives an opportunity for a long with asymmetric Risk/Reward.

Catalysts include success in the online segment, falling dollar/increased spending from tourists, stock buybacks.

Bed Bath and Beyond (NASDAQ:BBBY) is retail stock that has been recently beaten down together with the whole retail industry. The stock reached a top at almost $81 in January 2014, but fell about 50% since then, and it's trading around $46 dollars now.

The company has experienced tremendous growth in the last decade, but started to slow down recently, reporting declining net income and stagnating sales. The bad performance was due to weakness in the sector resulting from an overall weak consumer spending environment, declining tourism and increasing competition from online players such as Amazon (NASDAQ:AMZN).

Recent Results and Short-Term Prospects

Recent Results and Short-Term Prospects

Last quarter results were reported on July 6th. While net revenue was flat on a QoQ basis, net income was significantly lower at $122.6 million against $158 million reported for the quarter ending on May 30, 2015. This represents a -23% decrease QoQ, mainly as an effect of slightly higher cost of sales ( +1.2% QoQ, or $20 million more) and significantly higher Selling, General And Administrative Expenses (+5.2% QoQ, or $40 million more). According to the notes on financial statements, the increase in SG&A expenses was attributable to an increase in payroll and payroll related items (including salaries) and an increase in technology expenses and related depreciation. Also contributing to the increase in SG&A expenses, to a lesser extent, was an increase in advertising expense due in part to the growth in digital advertising. The last part of the last sentence underlines a commitment to growth in the online channel, something that all investors are expecting from the company in order to escape from the current situation of stagnating sales. Indeed, the company also declared that a significant portion of capital expenditures for 2016 (expected in the $400 - $425 million range) is meant for technology related projects, which includes enhancements to the Company's digital, web and mobile capabilities.

Due to the uncertainty in the retail sector, it's necessary for the company to demonstrate constant effort (and success) in the online channel. We know that US retail sales were flat in July, after three months of gains. And excluding autos, retail sales were down 0.3%. For the "Furniture and Home furnishing stores" segment, a 0.2% growth was reported. While the general environment for brick and mortar players was weak, non-store retailers saw sales growing 1.3%. Continuous growth in the sales of non-store retailers, against weakness in the in-store segments speaks for itself. Retailers need to grow in the...