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Bed Bath & Beyond Stock (BBBY): What to Expect From Q2 Earnings

Bed Bath & Beyond will report second-quarter earning this week. Here's what investors need to know.
  • Bed Bath & Beyond will report second-quarter results after the closing bell on September 29.
  • The company has been trying to implement a turnaround plan to avoid bankruptcy.
  • Any bullish news regarding Bed Bath & Beyond's financials could be enough to trigger a meme rally.
Figure 1: Bed Bath & Beyond Stock (BBBY): What to Expect From Q2 Earnings

Figure 1: Bed Bath & Beyond Stock (BBBY): What to Expect From Q2 Earnings

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Bed Bath & Beyond's Q2: Expecting the Worst

Expectations for Bed Bath & Beyond's  (BBBY) - Get Free Report second quarter (Q2) are as low as they get. After all, last quarter, the home-goods retailer reported some of its worst results ever, including a loss per share of $2.83 and a year-over-year revenue drop of 25%.

For the first quarter, Bed Bath & Beyond also reported total debt of $3.27 billion and a debt-to-equity ratio of -23.47. This indicates that the company's liabilities exceed its assets.

According to Bloomberg, some suppliers paused shipments to Bed Bath & Beyond after the company delayed some payments. This has caused Bed Bath & Beyond to flirt with bankruptcy.

That said, for Q2, consensus loss-per-share estimates stand at $1.80. That's nearly as high as the $1.96 loss per share we saw in the first quarter of 2020, when Bed Bath & Beyond's sales plummeted due to the start of the COVID pandemic.

In terms of revenue, Wall Street is expecting around $1.45 billion — a roughly 27% year-over-year drop.

Will the Turnaround Plan Work?

The August quarter will mark the first quarter with Sue Gove as interim CEO of Bed Bath & Beyond. Since assuming her new post, Gove has already been putting the company's turnaround plan into practice.

To pay down the company's debt and increase its liquidity, the home-goods retailer has announced the potential launch of a market offering program for up to 12 million common shares.

In addition, the company has shuttered approximately 150 stores and laid off about 20% of its employees.

The turnaround plan focuses on reducing selling, general, and administrative expenses by $250 million by 2022, compared to the original budget of $400 million.

Bed Bath & Beyond generated about $18 million in cash from operations last year while spending about $354 million on capital expenditures.

The company is also implementing initiatives to attract more customers to its stores and generate more sales, such as the launch of a loyalty program. It is also trying to optimize its inventory by holding incremental clearance sales.

But will it be enough to save Bed Bath & Beyond from bankruptcy?

Even with the turnaround plan being put in place, comparable sales are still expected to decline 26% from last year. For fiscal 2022, Bed Bath & Beyond expects comp sales to fall 20%.

What Does Wall Street Say About BBBY?

Recent meme rallies in BBBY have distorted the valuation of the stock. BBBY currently trades around $6.50, nearly 50% higher than its 52-week low of $4.38 per share in July. But in August, it peaked around $23 per share.

These rallies have occurred without any business-related news to justify the price appreciation.

Based on this, the Wall Street consensus is that Bed Bath & Beyond's stock is a strong sell. Among the 15 analysts who have covered the stock over the past three months, only two have neutral recommendations, while the rest have a sell recommendation.

Bank of America analyst Jason Haas is one of the bears. His price target on BBBY is currently $2 per share. According to Haas, after the company's new financing initiatives, Bed Bath & Beyond should have about $200 million in cash. But he's bearish about the company's ability to stop the cash burn in case vendors reduce their payable terms.

One of the rare exceptions among the bears is Jefferies analyst Jonathan Matuszewski, who has a neutral recommendation and a price target on BBBY of $9 per share. The analyst welcomes the company's cost-cutting plan, which would involve store closings as well as staff layoffs.

Also, Matuszewski notes that Bed Bath & Beyond's current turnaround plan is different from the ones the company has attempted in the past.

Interestingly, the Jefferies analyst raised his price target on Bed Bath & Beyond at the same time that Jefferies investment bankers brokered a sale of 12 million BBBY shares. According to a regulatory filing, Jefferies is entitled to receive a commission of up to 3% of the amount of stock sold.

However, there's no evidence that Matuszewski's new BBBY price target was influenced by the sale.

Will BBBY Rally After Earnings?

Given the low expectations for Q2, even if Bed Bath & Beyond reports minimal progress related to its expense containment and cash-burn initiatives could be main drivers for a "not so bad as expected" narrative.

Remember that, according to the outlook provided by Bed Bath & Beyond, retail sales should start recovering in the second half of fiscal 2022. So we shouldn't completely rule out a surprise in sales numbers.

Finally, meme traders and retail investors will be keeping an eye on Bed Bath & Beyond's earnings. Any good news could reignite investors' bullish sentiment and take the stock higher.

Looking at the options contracts on Bed Bath & Beyond that expire the day after the earnings call, Friday, September 30, even with very low bids, there is high volume and open interest in call options mainly between strike prices of $8 and $10.

Figure 2: BBBY calls expiring on September 30, 2022.

Figure 2: BBBY calls expiring on September 30, 2022.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)