Bears Better Beware A Snapback In Bed Bath & Beyond

The company is currently investing in Beyond+, a way to increase customer service and experience. Their focus is as follows:

  • 20% off entire purchase every time you shop (standard coupon exclusions apply);
  • Free standard shipping - with no minimum purchase;
  • Access to special offers and promotions throughout the year;
  • Easy to sign up and use;
  • $29 annual fee.

With the following results:

  • Shopping 2.5-times more than our average customer.
  • Generating 4-times higher revenue than our average customer.
  • BEYOND+ membership expected to be around 1 million by December 31, 2018.

Management stated this program cost the company 40 basis points in margin for the quarter. When you strip this out, margins were down 20 basis points, which is a marked improvement.

Relative Price Makes It Cheap

One of the top reasons that Bed Bath & Beyond kept coming to the top of our search came from its relative value to peers.

Being a niche retailer takes a lot of work these days. Many of the traditional brick and mortar formats struggle to keep revenues growing along with maintaining margins. Consider the following comparison of BBBY vs. several peers:

Source: Charles Schwab

Restoration Hardware (RH) saw declines in their margins from 2016 to 2017, going from 35.7% to 31.8%. Did their stock tank? Of course, it did. The company's shares fell from $100 to below $35. Earnings had dropped to around $0.13 per share. They did recover margins within a year, and share prices soared past their old highs.

Right now BBBY still holds nice $2.83 per share, and even with some erosion, will be in the single digits. The price to forecasted earnings estimates it is trading at 7x earnings. The Price/Sales TTM sits at 0.16. Fossil (FOSL), who hasn't turned a profit in over two years and has significant declines in revenue and margin, still trades at 0.38.

What's probably the most astounding is the price/tangible book. Investors essentially have deemed Bed Bath & Beyond to be worth less than its tangible book value. That's in-line with J.C. Penny, who is staving off bankruptcy, and the large banks after the financial crisis.

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