Tuesday, June 05, 2007

Bed Bath & Beyond (NASDAQ:BBBY): Color on warning

Couple of comments on Bed Bath & Beyond (NASDAQ:BBBY) after the co gave a profit warning for the June quarter:

- Deutsche Bank notes their estimate was $0.39, which matched previous plan. BBBY pre-announded comps will be +1.6%, below expectations of 3%-5%, but total sales will increase by ~11%, which is close to 11.4% consensus (helped by the buybuy BABY acquisition inter-quarter).

The firm suspects BBBY fell victim to the retail weakness in April, and home-related pressures. This appears to have led to lower comps and margins, as BBBY likely discounted and increased marketing spend to drive sales.

DB is tweaking their 1Q model by -$0.02 to $0.37, as well as 2Q-4Q by $0.01 each quarter, as comps will likely remain challenged for the home goods space for the foreseeable future, they believe. All in for FY07, they have adjusted EPS down by $0.05 to $2.31, with FY08 also down comparably. BBBY trades at 15.3x new 2008 forecast, versus the retail average P/E of 16.2x.

They expect the stock to fall as estimates are reduced. A below-peers valuation may act as somewhat of a buffer, but the surprise of the first ever warning will likely be the story. Maintains Hold.

- Piper Jaffray says that for FQ1, they are taking down EPS from $0.39 to $0.37 -- which compares to management's range of $0.36-$0.38. Owing to stepped-up competition, macroeconomic headwinds, weak traffic trends, and overly promotional merchandise, they believe top-line and bottom-line trends remain challenging for the home furnishing industry throughout most of this year. As such they are taking down FY08 estimate from $2.38 to $2.34.

Given belief that BBBY is lacking a significant catalyst for FY08, and in view of their revised earnings model, the firm is reiterating their Market Perform rating and $38 tgt. Piper expects BBBY stock to be weak this morning.

Notablecalls: BBBY has been the poster child of the home furnishing space for the past 15 years. Yet, competition has become so stiff that even the best players are starting to feel it. Must say I saw this one coming when I read the wonderful call by Morgan Keegan published last week:

BBBY May Have Been Out-Done by Discounting from Direct Competitor
- Our channel checks indicated a heavy level of discounting by Linens-N-Things over the Memorial Day weekend.
- Our SSS estimate of 5% on top of 5% for the May quarter may prove too aggressive.
- We view the company's annual guidance of 10% top-line and EPS growth yr./yr. in FY2007
as more likely to be achieved through share buyback and unit growth than stable margins
and SSS.

Also, weakish Q2 guidance from Williams Sonoma (NYSE:WSM) seemed to confirm my suspicions.

While I think the first ever profit warning is likely to dent BBBY's valuation, I think the stock may be buyable for a bounce. BBBY traded around $39 and change is after hours but I suspect we may see levels of around $37 or even $35-$36 today. I would be bidding around the very low end of that range. Agressive accounts may even try finding some short-selling opportunities very early on (say around $38).


Carl said...

still snow white

Carl said...

still snow white