Bed, Bath & Beyond Crushed After Earnings

Bed, Bath & Beyond Inc. (BBBY) is trading at a 52-week low on Thursday morning after missing fiscal Q2 2021 estimates by a wide margin and lowering Q3 earnings-per-share (EPS) guidance below consensus. The specialty retailer posted a profit of just $0.04 per-share during the quarter, missing expectations by an outsized $0.48, while revenue fell a disturbing 26.2% year-over-year to $1.99 billion, about $700 million below expectations.

Red Flag Warning for Retailers

Comparable sales fell 1% year-over-year, reflecting slower-than-expected August traffic trends in reaction to the Delta variant, but Q2 2020 metrics were skewed by reverberations after the March lockdown last year. The guidance takedown was steep, dropping Q3 EPS to $0.00 or slightly above, compared to a healthier $0.29 per-share. This warning signals an uptick in retail management bearishness compared to most Q2 reports.

Mall complexes have been under pressure for years due to the secular rotation out of brick and mortar sales and into e-commerce. The pandemic super-charged these headwinds, forcing department stores to shut down less profitable operations that have kept many malls afloat in recent years. The closing of Sears and J.C. Penney has contributed to this phenomenon, impacting Bed, Bath & and Beyond because many locations surround these dying properties.

Wall Street and Technical Outlook

Wall Street consensus is mixed, with a ‘Hold’ rating based upon 2 ‘Buy’, 1 ‘Overweight’, and 13 ‘Hold’ recommendations.  Unfortunately for bulls, 5 analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of just $19 to a Street-high $44 while the stock opened Thursday’s session more the $3 below the low target. Sadly, the warning suggests many analysts will reduce current targets at both ends.

Bed, Bath, & Beyond topped out near 80 in 2013 and broke down from a topping pattern in 2015, entering a downtrend that plunged to a 24-year low in March 2020. It broke out above the 2019 swing high at 17.79 in October, entering a two-legged advance that posted a 6-year high in January 2021. A lower June high filled out a heavy topping pattern that’s now broken 2021 support in the low 20s. The October 2020 unfilled gap at 14.31 looks like the downside target.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.