Bed Bath & Beyond Uncovers The Problem With Q1 Earnings Season

Supply Chain Disruption Sucks Wind From Bed Bath & Beyond Recovery 

Bed Bath & Beyond (NASDAQ: BBBY) had a horrible quarter impacted by supply chain disruptions that have its inventory in transit or sitting in port. As bad as the news is for Bed Bath & Beyond investors the repercussion for the market is much more severe. If the situation develops into a trend and there is no reason to think it won’t, results from a broad array of sectors could come in well below forecast. We’re not sure how conditions are in all parts of the US but store shelves around our neck of the woods have more gaps than ever. 

“Macroeconomic factors, such as the disruption of the global supply chain, the Omicron variant, as well as the geopolitical turbulence weighing on consumer confidence, have uncovered more vulnerabilities than we could have foreseen at this stage of our transformation, as we completely rebuild the foundation of our business,” says CEO Mark Tritton. 

Bed Bath And Beyond Gets Dunked In Q1 

Bed Bath And Beyond was expected to post a large decline in YOY revenue due to factors that include tough comps, no stimulus tailwind, and store closures as a result of the turnaround plan. The bad news is the $2.05 billion in revenue is down 21.8% from last year and missed the consensus by 150 basis points. The decline is driven by a 12% reduction in comp sales versus the expected 8.5% and an 18% shortfall in eCommerce sales. 

“The lack of available inventory to sell proved to be a continuing impediment to sales through the remainder of the fourth quarter and into the early part of fiscal 2022 …  We estimate an impact of approximately $175 million to our fourth-quarter sales, or a high-single-digit deficit, as a result of a lack of in-stock availability in our Bed Bath banner. Positive product-related margin expansion associated with our Owned Brands, pricing, and promo optimization were offset by escalating supply chain costs. “

Moving on to the income, the company reported a 400 basis point contraction in the gross margin that was at least offset by an improvement in SG&A expense. The bad news is the company incurred a net loss for the quarter that resulted in adjusted earnings of -$0.92 or $0.95 weaker than the Marketbeat.com consensus. The good news is the loss is due to special items related to restructuring and turnaround and will not be recurring. The bad news is the company was unable to give more than optimistic guidance and it is one fraught with risk. Full-year results are expected to show YOY improvement due to the expected supply chain improvement in the back half of 2022. The back half of F2022 is a long way away. 

The Technical Outlook: BBBY Slips And May Not Be Able To Get Up 

Shares of BBBY fell more than 10% on the Q4 news but buyers were there to meet the fall. The bad news is that buying may be more because of short-covering than real buying so the rebound is not likely to last. In our view, price action may rebound to the short-term moving average near $20.50 but we do not expect to see it move much higher. While there is a positive outlook for the back half of the year, Bed Bath & Beyond needs to get through two-quarters of the first half and we think they will be tough quarters indeed. The supply chain may catch up, but just in time for inflation to curb demand. If the shorts get active again, this stock could retest the recent low near $12.50 or lower.