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Bed Bath & Beyond Transformation Gains Traction

Bed Bath & Beyond (NASDAQ: BBBY) has popped up on our radar more than once over the past year and for more reasons than one. At the core of the story...

This story originally appeared on MarketBeat

Bed Bath & Beyond Is Fundamentally A Good Buy

Bed Bath & Beyond (NASDAQ: BBBY) has popped up on our radar more than once over the past year and for more reasons than one. At the core of the story is a nationwide rationalization of the company that has it repositioned for growth. Add to that the secular stories of home improvement, housing, and reopening and we think you understand why we've been interested. Along the way, there's been the meme stock craze which helped drive the stock up to multi-year highs but that volatility should be subsiding. Now, with fundamentals back in control of the situation, the stock is ready to rocket higher again and should be retesting the $45 level very soon. contributor/ via MarketBeat

Mark Tritton, Bed Bath & Beyond's President and CEO said, "We have started the year in a position of strength and are clearly on track to accomplish our goals. 2021 marks the first year of our three-year transformation following the groundwork we laid in 2020 – a year of historic and necessary change for this organization against the backdrop of unprecedented challenges due to COVID-19."

Omni-Channel Strength Drives Bed Bath & Beyond Results

Bed Bath & Beyond's transformation is multifaceted including store closures, store realignment, the launch of proprietary brands, and digital. The company's new motto is "omnichannel always" and we think that is a good idea. The company did not break out its e-commerce data but the system-wide results are strong. The reported consolidated revenue of $1.95 billion is up 48.9% from last year and beat the consensus by 430 basis points. This is against a very easy comp, last year's Q1 saw Revenue fall 49%, and the 2-year comp isn't pretty either but there is a mitigating factor. While reported revenue is down 24% over the past two years when adjusted for divestitures and other repositioning activities, comp sales are up 3% and on track to continue growing in Q2 and the remainder of fiscal 2021.

Moving down the report, the company experienced a significant expansion of margins due to repositioning efforts and the launch of the highly accretive Owned Brands line of products. The GAAP operating margin increased by 570 basis points while the adjusted gross margin improved by 820 basis points to 34.9%. The only bad news that we see is that earnings missed their consensus mark but once again there is a mitigating factor. The GAAP EPS of -$0.48 missed by $0.58 while the adjusted EPS of $0.05 missed by only $0.03. The miss is due to unexpected spending on marketing investment along with the cost of launching the owned brands. In both cases, we view these costs as accretive to long-term results and it looks like the market agrees with us.

Bed Bath & Beyond Guides The Market Higher

Bed Bath & Beyond's results were strong enough for the company to improve the guidance. Guidance has been improved for both the next quarter and for the full year. The company now expects Q2 Revenue in a range above consensus with EPs in a range that brackets consensus to the high side with a similar increase to full-year results. We think these are cautious estimates.

Tritton added, "During the quarter, we successfully launched our margin-accretive, customer-inspired Owned Brands and accelerated growth with our Digital First, Omni-Always focus. We are re-establishing our authority in home, recapturing market share and unlocking our full potential. We continue to execute quarter after quarter, and we are pleased to be raising our full year guidance outlook today."

The Technical Outlook: Bed Bath & Beyond Has Game-Changing Quarter

Bed Bath & Beyond's results caught the market by storm and sent shares up more than 25% in early trading. The caveat here is that the high 20% short interest may have something to do with this so investors may want to prepare for volatility over the coming days and weeks. That said, we view these results as game-changing and see this move as a breakout. Assuming the stock can maintain support above the $35 level, we see it moving up to The $40 level, $45, and $50 over the next few weeks to two months.

Bed Bath & Beyond Transformation Gains Traction

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