Bed Bath & Beyond Stock Skyrockets on Q1 Earnings

Shares of Bed Bath & Beyond (NASDAQ: BBBY) skyrocketed by as much as 31% on Wednesday after the retailer reported fiscal first-quarter earnings. The results were mixed relative to expectations, but investors cheered the top line beat.

Bed Bath & Beyond is among the prominent meme stocks with high short interest that retail traders on Reddit’s WallStreetBets subreddit have been targeting, leading to heightened volatility.

As of 12:30 p.m. EDT, the stock had given back some of those gains but was still up 9%.

Beating top line expectations

Revenue in the fiscal first quarter came in at $1.95 billion, ahead of the consensus estimate of $1.87 billion in sales. Comparable store sales surged by 86% as the company’s turnaround strategy has started to pay off. That all resulted in adjusted earnings per share of $0.05, which missed Wall Street’s forecast of $0.08 per share in adjusted profits.

Core sales, which the company defines as including Bed Bath & Beyond, buybuy BABY, Harmon Face Values, and Decorist, increased by 73%. Bed Bath & Beyond’s guidance had called for core sales growth of just 65% to 70%. Adjusted EBITDA in the first quarter was $86 million, in line with the guidance range of $80 million to $90 million.

Profitability is also improving significantly, with adjusted gross margin expanding by a whopping 820 basis points (8.2 full percentage points) to 34.9%. The company attributed much of that gain to higher sales of newly launched private label brands such as Nestwell, Haven, and Simply Essential.

The next three private label brands—Our Table, Wild Sage, and Squared Away—are launching ahead of schedule. Our Table and Wild Sage launched this month (after the fiscal quarter closed at the end of May), while Squared Away is debuting in July.

Additionally, the channel mix shift and digital penetration levels are starting to return to normal levels. A year ago, the COVID-19 pandemic was just beginning and many stores were closed, leading digital penetration to jump to an elevated level of 66%. This figure came back down to 38% in the fiscal first quarter.

Making progress on the turnaround

Bed Bath & Beyond is making meaningful progress on its turnaround strategy, which includes divesting non-core banners, optimizing its store fleet, and focusing on its digital transformation while also repurchasing stock using money from the divestitures. 

The company has closed 160 stores thus far, including 16 locations last quarter. For the fiscal year, total store closures are expected to be 200, while Bed Bath & Beyond is remodeling another 130 to 150 stores across North America. 

Private label brands comprised a “high-teens percentage” of sales in the fiscal first quarter, and the company is targeting 30% by fiscal 2023. 

Boosting guidance

Thanks to the momentum, the company raised its guidance for fiscal 2021. Bed Bath & Beyond now expects total revenue to be in the range of $8.2 billion to $8.4 billion, up from a prior forecast of $8 billion to $8.2 billion. Comps are expected to be in the low-single digit growth range, compared to the previous expectation of around flat.

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