A Top And Bottom Line Miss For Bed Bath & Beyond, Investments Still Weighing Down Earnings

The increasing investments tied to ecommerce has weighed on the profitability of Bed Bath & Beyond Inc. (NASDAQ: BBBY), whose Q2 results missed estimates amid negative store traffic.

The quarterly EPS of $1.11 missed Street expectations for $1.16 as comps remained in the red and SG&A deleveraged. Comp sales declined 1.2 percent on lower traffic. Ecommerce grew greater than 20 percent, though in-store comp store sales declined in low single digits.

"Capex is still expected to peak this year at $400-$425 MM, the company could continue to see shrinking EBIT margins in the following year as GM% continue to be negatively affected by coupon expense and a lower free shipping threshold," Jefferies analyst Daniel Binder wrote in a note.

Binder maintained his Hold rating and $45 target price as he is skeptical about company's success in selling new product categories.

"BBBY continues to expand its offering beyond core categories as it seeks more share of wallet, but it is less clear how it is differentiated early on and marketing support needs to follow if these categories are ever going to be meaningful," Binder noted.

The analyst's $45 target price is based on a EV/EBITDA multiple of 5x applied to his FY18 EBITDA estimate of $1.5 billion. Binder's target multiple is below the 5-year average EV/EBITDA of 7x, to reflect increased competition, modest sales gains, and EBIT dollar and margin pressure.

At time of writing, shares of Bed Bath & Beyond rose 1.26 percent to $43.65.