Late in 2016 and after Bed Bath & Beyond (BBBY) reported their Q3 2016 results I authored a detailed analysis of the company’s results and state of business operations. In the article titled Bed Bath & Beyond Gross Margin Contraction Seems Never Ending I discussed the continued issues plaguing Bed Bath & Beyond’s metric performance. And it is with respect to my previous analysis that this article will serve to recap Bed Bath & Beyond’s Q4 2016 results, the retailer’s 2017 guidance and analyze the quarter that was. But before doing so let’s take a look at what the company reported in the Q3 2016 period to serve as a guide into the recently reported Q4 2016 period.

The Company reported FQ3 EPS of $0.85 that missed by $0.13 a share and revenue of $2.96B (+0.1% Y/Y) that missed by $50 million. In reporting sales, the company boasted greater than 20% digital sales growth while total same-store-sales fell 1.4% versus the same period a year ago. Quite a dismal performance for the retailer yet again! Moreover, if it weren’t for the recent acquisitions and new store openings, total net sales would have been negative for Bed Bath & Beyond in the quarter reported.

The Q3 2016 report was not the only reporting period for which Bed Bath & Beyond had missed estimates. The company has been missing analysts’ estimates for the better part of the last 6 quarters. As such, the share price has been cut in half since 2015. The most consistent and relevant problem surrounding Bed Bath & Beyond’s business has been the continued gross margin contraction. Bed Bath & Beyond is experiencing all-time low gross margin performance, seemingly contracting for every quarter and on a YOY basis for several years now. It’s one of the reasons I had disposed of my investment in the retailer in 2015 and at the high share price of $76 through UBS, which handles Bed Bath & Beyond restricted stock grant ownership. 

My concerns over the retailers’ gross margin performance surfaced in 2014 and continued through 2016. As early as June 2014, I pre-warned investors about my gross margin considerations in the article titled Bed Bath & Beyond’s Gross Profit Looks Worrisome. In 2015 and as I saw gross margin performance further deteriorating, I sold my stake in the company and further detailed the issues in an article titled Bed Bath & Beyond’s Gross Profit Margins Come Home To Roost. One of the tables I offered to investors back then was a review of the company’s previous yearly gross margin performance as depicted below:

Margins

2007

2008

2009

2010

2011

2012

2013

Gross

41.5%

39.9%

41.0%

41.4%

41.4%

40.2%

39.7%

Based on what Bed Bath & Beyond has reported even since 2015 and as recently as yesterday, the retailer is currently expressing a 38% profit margin, nearly 170 basis points lower than 2013. One of the most alarming facts about the table depicted is that Bed Bath & Beyond is expressing lesser gross margin performance than during the Financial Crisis and subsequent recession. Projecting “beyond” that, one has to factor in what the business would express should another recession take place in North America. And thusly, that brings us to the company’s most recently reported results and guidance for FY17. 

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