Bed Bath and Beyond reported 1Q15 results that were slightly below consensus expectations. Revenue once again grew at the low end of expectations and operating margin declined at a greater rate than expected. As I wrote in the past, Bed Bath & Beyond's bear thesis has largely played out as the company has suffered from increasing competition. Moving forward, it's difficult to see what might provide a boost to their top-line revenue or reverse the profitability declines.
Revenue Pressure and 2Q Comp Guidance in Question
BBBY reported 1Q15 comps of 2.2%, which was at the low end of their guidance range. This also came on the easiest comparison of the year. On the bright side, online comparable sales grew at 35%, and should continue to benefit the company going forward. However, as of right now, it's not significant enough to move the needle in a big way. Moving forward, management noted that they expect 2% - 3% comps in 2Q15 and in the back half of the year. However, with difficult comparisons ahead, investors may be skeptical of management's expectations.
Profitability Decline Worse than Expected
Gross margin declined 68 basis points, while SG&A deleveraged another 66 points. In total, operating margin declined 134 basis points. Bed Bath & Beyond's outlook doesn't look promising either, as gross margin declines are expected to continue from increased couponing and shipping costs, while SG&A is expected to continue to deleverage on elevated investment spend.
EPS Guidance Points to Continued Difficulties
Guidance of $1.18 to $1.23 for 2Q came in below investor expectations and consensus of $1.23. For the full year, management maintained their guidance of flat to mid single digit growth. However, it looks like full-year consensus estimates at $5.26 will have to revise downward, which is likely to pressure the stock. My own estimates place the company at $5.11 for the year.
BBBY's updated 1Q15 financial model can be found on my models page.