Bed Bath & Beyond Q2 preview: Where next for BBBY stock?

When will Bed Bath & Beyond release Q2 earnings?

Bed Bath & Beyond will release second quarter earnings covering the three months to August 27 before US markets open on Thursday September 29.

Bed Bath & Beyond Q2 earnings consensus

Wall Street is bracing for sales to fall almost 27% this quarter from last year to $1.45 billion and for the company to sink to a $121.8 million adjusted Ebitda loss from the $84.6 million profit booked the year before. The adjusted loss per share is expected to amount to $1.56 compared to the $0.04 profit turned out 12 months earlier.

Bed Bath & Beyond Q2 earnings preview

Management still has a big job to do in convincing investors it has the right plan to turn things around for the struggling and finally stricken homeware and baby goods retailer.

Bed Bath & Beyond shares have almost halved in value and have hit fresh two-month lows since management announced it was taking immediate and urgent action to try and get the business back on its feet at the end of August, showing investors still have major doubts. The death of its chief financial officer Gustavo Arnal just days after the turnaround plan was released has also left another hole in senior management, with the company still searching for a permanent CEO after Mark Tritton was ousted back in June.

The company has secured $500 million worth of new financing to help shore up the balance sheet considering its cash balance had dwindled to less than $200 million at the end of May from over $1.1 billion a year before. That will be followed by an equity raise and accompanied by a sharper focus on stemming the outflow by delivering $250 million worth of cost-savings in the second half of this year and slashing its capital expenditure budget by $150 million. The fresh funding will give Bed Bath & Beyond more time to steady the ship, while reduced costs should help reduce cash burn.

Its plan to close 150 of its worst-performing stores, representing almost 16% of its 955-strong store network, will be a major driver of reducing expenditure and it has already outlined the first 56 that will go. This has also seen it remove the role of both chief stores officer and chief operating officer, leaving further holes in management.

It is also making a U-turn on its decision to ditch third-party brands and push more of its own labels after realising customers miss well-known names on its shelves. This will see it exit its Haven, Wild Sage and Studio 3B brands with their shelf space being shifted to third-parties, leaving Bed Bath & Beyond with just six of its own labels. This will require it to rebuild its relationships with suppliers and vendors, which it hopes to cement during an event sometime in ‘early Fall’. It is also hoping its new Welcome Rewards loyalty programme, which has around 5 million users, can be leveraged and encourage shoppers to visit its different store fascia’s, including buybuy BABY and Harmon.

The company looks like it has decided to keep the buybuy BABY brand, at least for now. This is currently viewed as the jewel in what is appearing to be a rather shoddy crown at present and some were expecting Bed Bath & Beyond to sell the business to realise its value. Activist investor Ryan Cohen, who sent the stock on a rollercoaster ride after buying shares and then offloading his entire stake in the business earlier this year, was among those pushing for a sale on the belief it could be worth several billions dollars on its own. With that in mind, Bed Bath & Beyond boasts a valuation closer to just $500 million today. Interim CEO Sue Gove suggested the board was still open to a potential sale as recently as July, when she said ‘we’re not alone in appreciating its value’ and that ‘we know there is interest’ in the brand, but Bed Bath & Beyond has said it is now striving to grow the buybuy BABY organically and turn it into a one-stop shop for parents ‘from pre-natal to pre-school’.

Investors will want to see two things this week. The first is some early sign that the immediate and urgent action taken has started to deliver some meaningful difference since being implemented a month ago and the second is more granular detail on the plan, including how – and more importantly when – it will reap rewards.

The outlook remains bleak for now. The second half should be better than the first, but it is still hard for investors to get excited considering Bed Bath & Beyond has said comparable sales will be down ‘in the 20% range’ over the full year. It is also likely to continue burning through cash to immediately eat into the fresh funding, with the company having warned it will report a free cash outflow of around $325 million in the second quarter alone. Wall Street believes it will continue to burn through cash in the second half, albeit at a reduced rate compared to the first, but investors will remain wary that the new funding will only last so long.

The challenge looks even greater in the current climate. The gloomy economic outlook and a pullback in consumer spending, with retail sales in Bed Bath & Beyond’s categories slumping in August, will make it all the more difficult for the company to deliver. Wall Street continues to be much more bearish toward the company and its prospects than its horde of retail investors, although their confidence is also being shaken. Analysts believe Bed Bath & Beyond will see revenue fall 21% over the full year and expect its adjusted loss per share to be almost six times larger than what we saw last year, and they forecast it will still be grappling with lower sales and hefty losses in the 2024 financial year – although they hope it can start generating positive cashflow again.

Where next for BBBY stock?

Bed Bath & Beyond shares have lost ground for five consecutive sessions and currently trades at their lowest level in almost two months.

The bearish RSI supports the view that the stock could remain under pressure and continue to drift toward the 29-month low of $4.44 hit in July. Any drop below here could signal a new downtrend is in firmly in play after the spike seen last month and send the stock toward the pandemic-induced lows seen in March 2020 at $3.50. Notably, the 16 brokers that cover Bed Bath & Beyond remain bearish on the stock and believe it is still significantly overvalued with an average target price of $3.91, some 39% below the current level.

The first upside target to recapture is $7.50, the level of support in May that turned to resistance in June before the 100-day and 50-day moving averages come back into view. From there, it can target the $9.20 ceiling hit in May and then again earlier this month.

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