Bed Bath Profit Plummets in Third Quarter

Sales flat, same-store sales down
December 22, 2016David Gill

BedBathBeyond20163x2UNION, N.J.-Flat sales, reduced gross margin and rising costs combined to depress Bed Bath & Beyond’s third quarter net income by 28.9 percent, to $126.4 million.

Net sales in the quarter, which ended on Nov. 26, were virtually flat at $3 billion but included a 1.4 percent dropoff in same-store sales. During a conference call reviewing the results with financial analysts, Bed Bath CFO Susan Lattman said the top-line performance included a considerable decrease in sales a week before the presidential election, followed by same-store increases for Black Friday and Cyber Monday. Overall, same-store sales reflected a decline in the number of transactions per store, partially offset by an increase in the average ticket.

Gross margin fell 81 basis points to 37 percent, the result of increased expenses for direct-to-customer shipping and for coupons. Selling, general and administrative expenses rose 7.2 percent in dollars and 197 basis points as a percentage of sales, to 29.8 percent. Increased expenses for payroll and Bed Bath’s continuing efforts to upgrade its technology—as more of its sales migrate to digital channels—fueled the expense increase, Lattman said.

Bed Bath will face continuing pressure on its results in the quarters to come, said Brad Thomas, analyst with Keybanc Capital Markets, in a research note. “First, investments in the company’s website and IT capabilities have weighed on profitability, and we believe the company still needs further investments in its website, systems and mobile business,” Thomas said. “Second, gross margin has declined in 20 consecutive quarters, and we expect this trend to continue. Third, {Bed Bath} has had competitive headwinds from online players from a price, selection, and delivery perspective.”

The quarter for Bed Bath was notable for its acquisition of PersonalizationMall.com (PMall), the online retailer of personalized products. “The addition of PMall expands our existing personalization and customization capabilities and further enhances our offering of differentiated product, service and solutions to our customers,” said CEO Steven Temares during the conference call. “As we have said previously, we view personalization as a significant opportunity for us to create additional differentiation and enable us to do more for and with our customers.”

Bed Bath has also broadened its assortment in furniture and home décor, and recently unveiled a drapery design gallery in select stores and on bedbathandbeyond.com. In early October, the retailer also released its first “Welcome Home” catalog, with 84 pages of merchandise for every room in the house.

Looking ahead, Bed Bath expects full fiscal-year net sales to rise by about 1 percent, with same-store sales declining by about 0.5 percent, Barth said.

David GillDavid Gill | Contributing Editor

David Gill is a contributing editor to HFN.

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