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Bed Bath & Beyond's outlook sends stock plunging

By Anne D'innocenzio

Associated Press

Published: Thursday, June 21 2012 11:52 a.m. MDT

Ben Lerman, 18, checks out supplies at Bed Bath & Beyond in Los Angeles for his college dorm.

Francine Orr, McClatchy Newspapers

Enlarge photo»

NEW YORK — Bed Bath & Beyond's shares tumbled a day after the home goods seller issued an earnings outlook below Wall Street's expectations and fueled concern about shoppers' ability to spend in what appears to be a slowing economy.

The disappointing outlook came as the chain announced better-than-expected results for the first quarter on Wednesday. But Bed Bath & Beyond Inc. told investors that its gross profit margin shrank as it used more coupons to get people to open their wallets. The chain, like other "big-box" stores of all stripes, is also facing stepped-up competition from discounters and online retailers.

The Union, N.J.-based company said late Wednesday that it earned $206.8 million, or 89 cents per share, for the quarter that ended May 26. Analysts polled by FactSet expected earnings of 84 cents per share.

Revenue grew by 5 percent to $2.22 billion, but that fell below Wall Street predictions of $2.24 billion. The chain also reported a modest 3 percent growth in revenue at stores open at least a year. That was a sharp slowdown from the company's fourth quarter, which registered a better-than-expected 6.8 percent increase. Revenue at stores open at least a year are considered an important measurement of retailer health because they exclude results from stores that have opened or closed in the past year

For the fiscal second quarter, Bed Bath & Beyond said it expects to earn 97 cents to $1.03 per share. That was below the $1.08 per share.

The revenue shortfall and disappointing earnings outlook came as the latest batch of economic data showed more evidence of a slowing economy.

The Labor Department on Thursday reported a small drop in the number of people applying for unemployment benefits. Figures for the previous week were revised higher. That's bad news for the job market because the figures indicate that companies are still laying off workers.

A report on the housing market didn't help, either. The National Association of Realtors said Thursday that sales of previously occupied homes dropped 1.5 percent in May from the previous month.

"Bed Bath & Beyond has had a great run. But the question is whether the great growth pace is now running out of gas," said Craig Johnson, president of Customer Growth Partners, a retail consultancy. "Where does it go at a time when consumer demand is beginning to soften?"

Bed Bath & Beyond runs more than 1,000 stores nationwide under the Bed Bath & Beyond, Christmas Tree Shops, buybuy Baby, Harmon and Home & More banners. The retailer has been expanding its reach with several recent deals. It announced in May that it will buy home decor retailer Cost Plus Inc.. Cost Plus sells a variety of home furnishings, accessories, food and wine under its two formats, World Market and Cost Plus World Market.

The acquisition followed promising results from a joint effort with Cost Plus to put specialty food department in some Bed Bath & Beyond stores. The goal is to generate more traffic and sharpen its edge against online merchants.

This month it said it will buy textile company Linen Holdings LLC.

"Despite the ongoing economic challenges that are affecting consumers, our fundamental business strategy remains unchallenged: to offer a broad assortment of merchandise at every day low prices with superior customer service," said Steven Temares, CEO of Bed Bath & Beyond in an address to investors during the call late Wednesday. "As always, we will continue to invest in all aspects of our company and work to enhance our customer's overall experience in store, online and through mobile devices, and social media."

But shares fell $11.77 by early Thursday afternoon to $61.90, making Bed Bath and Beyond the biggest decliner in the Standard & Poor's 500 Index. Shares have been trading anywhere from $48.75 to $75.84 over the past 52 weeks. Since late 2008, when shares were trading around $17, the stock had quadrupled in price.

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