Bears Better Beware A Snapback In Bed Bath & Beyond

Bears Better Beware A Snapback In Bed Bath & Beyond

We recently embarked on research to find companies that would be considered a value. Analyzing the data from our StockMetrix app, Bed Bath and Beyond (BBBY) kept popping to the top of our list. Yet, with sentiment so bearish and last quarter's results coming in terribly, is it really a value?

Investors decided that they'd rather park their money in cash and leave BBBY for dead. The stock has taken a nose dive from $80 in 2015 to below $15 today. That's pretty remarkable given that the company's revenues are a touch higher today. So why the massive decline?

Analysts point to the company's inability to stem the erosion in margins. Even with higher revenues operating income halved from just a year ago as did net income. Management seems to be somewhat complacent about the decline in profits. They continue to stick to their guns on their investments and turnaround strategy.

Source: Morningstar

Despite the massive selloff, bears in the stock need to slow their roll. Right now the company is priced as if it's heading the way of Sears (SHLD) and J.C. Penny (JCP).

Online Sales Continue To Skyrocket

Bears point out that same-store sales continue to erode at Bed Bath & Beyond, which declined 60 basis points vs. 2% the prior quarter. However, no one points to the fact that E-Commerce sales continue to not only grow but make up a larger portion of total sales each year.

Source: Emarketer

Source: Emarketer

Online sales now account for 16.1% of total revenues TTM and 18.3% from Q1. Every quarter the company has grown its online business by 22%+. Hate the physical store all you want. At some point soon the company's digital footprint will turn the corner for their business. When you consider that companies like Williams Sonoma (WSM) make over half their sales online, you can see pretty quickly where the company can grow.

Source: Morningstar

Bears & Management Overstate Couponing

A considerable portion of the company's decline in margins stems from a rise in SG&A costs. Bears believe that the heavy amount of couponing is killing the business. Everyone knows about the vast couponing that the company promotes and has known for years. The company didn't suddenly get a massive influx of coupons that both drove down margins and is expected to continue. Rather, the company is experimenting with getting the right mix of marketing, technology, and personalization.

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