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UBS On Bed Bath & Beyond's Q2: 'We Don't Think Core Trends Improved Much'

September 16, 2016

UBS’ Michael Lasser believes there will not be much improvement in core trends for Bed Bath & Beyond Inc. (NASDAQ: BBBY) during the quarter, given that reads from peers highlight Q2 as a difficult quarter for the sector, while competitive intensity increased significantly.

Lasser maintains a Neutral rating on the company with a price target of $47.

Tough Quarter

The analyst expects Bed Bath & Beyond to witness -0.5 percent comp during the quarter, representing 150 bps deceleration on a two-year stack, although Memorial Day falling in Q2 could have helped.

Lasser mentioned that the company’s “eComm channel also probably continued to grow. However, soft traffic likely weighed on its store sales.”

The analyst estimates the company underperformed the Census Bureau HF retail sales by 360 bps during Q2, while margins were likely to have continued to decline.

Furthermore, Lasser does not expect Bed Bath & Beyond’s profitability to have stabilized in Q2 and believes that it is unlikely to stabilize in the near future.

“We model a -70 bps GM decline due to higher shipping costs from a lowered free shipping threshold & higher eComm growth,” the analyst stated.

Outlook

The company’s guidance suggests modest comp acceleration in H2. However, assuming that same-store sales are in line with the estimate in Q2, comp would need to be in the 1 percent range for H2 for Bed Bath & Beyond to achieve the midpoint of its guidance.

“While this might be achievable, there could be some downside risk if the environment remains sluggish. Plus, there could be a wallet share shift to apparel over the holidays,” Lasser added.

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