Bed Bath & Beyond Inc. is having difficulty competing with Amazon.com Inc. on price without coupons and other discounts, hurting its margins, Wedbush analysts say.
Shares of the home furnishings and household goods retailer plummeted 21% in Thursday trading after reporting earnings and sales that missed second-quarter guidance, the biggest percentage drop ever as a publicly-traded company.
The company is in the midst of a turnaround and modernization program that includes optimizing the supply chain and revamping stores. Many of the remarks from company executives on the earnings call focused on updates to those initiatives, according to a FactSet transcript.
Despite these details, many analysts point out that Bed Bath & Beyond BBBY, -21.00% is struggling to compete with other retailers on a number of fronts.
“Our pricing analysis points to a widening price gap with Amazon AMZN, -0.05% , with compelling pricing only when factoring in 20%-plus discounts from coupons or the company’s Beyond+ loyalty program, suggesting margin pressure will persist as the company grows its loyalty program and enhances other coupon offers to stay competitive,” wrote Wedbush analysts led by Seth Basham.
Wedbush rates Bed Bath & Beyond shares neutral and cut its price target to $15 from $18.
J.P. Morgan analysts agree that the pressure will be on going forward into the critical holiday shopping season.
“Bigger picture, given our view that Bed Bath & Beyond was unable to post positive comps this last holiday season despite a robust consumer backdrop (best holiday since 2005), we find it difficult to see a turn in sight,” analysts said.
Bed Bath & Beyond reported a same-store sales decline of 0.6% in the second quarter.
J.P. Morgan rates Bed Bath & Beyond shares underweight with a $14 price target, down from $16.
Though competition is an issue, analysts thought Bed Bath & Beyond would benefit from the Toys ‘R’ Us liquidation. Bed Bath & Beyond also operates Buy Buy Baby Inc., World Market and Harmon, among other retail chains.
“Sequentially, trends remained flat on a one-year basis, but decelerated on a two- and three-year basis, which is particularly disappointing given the stronger consumer backdrop and a tailwind from the Toys ‘R’ Us bankruptcy on the baby business, which we estimate could have been as much as 1%,” wrote Keybanc Capital Markets analyst Bradley Thomas.
He highlights the company’s gross margin declines over 26 consecutive quarters, a trend that he expects will continue.
KeyBanc rates Bed Bath & Beyond shares underweight with a $15 price target, down $1.
Taking all of the company’s issues together, Wells Fargo analysts are pessimistic.
“With the benefits of Toys ‘R’ Us closures, a strong consumer environment and a host of ambitious company initiatives failing to materialize in our view thus far, we remain bearish on 2018, and see further downside risk ahead,” analysts wrote.
Wells Fargo rates Bed Bath & Beyond shares underperform with a $14 price target, down from $16.
Bed Bath & Beyond shares have dropped more than 32.4% in 2018 so far, while the S&P 500 index SPX, +0.28% has gained 9% for the period, the SPDR S&P Retail ETF XRT, -0.18% is up 13.5% and the Amplify Online Retail ETF IBUY, +0.25% has rallied 27.7%.
