Bed Bath & Beyond (BBBY) Faces Headwinds: Sell the Stock

Buying stocks with surging share price and a favorable recommendation is a smart decision. Also, exiting underperforming stocks at the right time helps safeguard your portfolio. Bed Bath & Beyond Inc. BBBY is one such company that you should avoid at least for the time being. This Zacks Rank #4 (Sell) stock has plunged nearly 29% in the past 12 months. Moreover, its share price is hovering close to its 52-week low of $39.86.

BED BATH&BEYOND Price and Consensus

BED BATH&BEYOND Price and Consensus | BED BATH&BEYOND Quote

Bed Bath & Beyond, a leading operator of specialty retail stores in the U.S. and Canada, continues to be impacted by sluggish mall traffic and high promotional costs. Further, its exposure to global markets makes the company prone to various risks associated with international operations like currency headwinds.

Additionally, the seasonal nature of Bed Bath & Beyond’s business may significantly impact results if any particular season fails to deliver. Notably, the company generates stronger results in the second and fourth quarters. Alongside, its margins remain pressurized, mainly due to soft merchandise margins and a rise in coupon costs.

Dismal Q2 Performance

All the abovementioned factors hurt the company’s quarterly performance, as reflected by its dismal results in second-quarter fiscal 2016, wherein both top and bottom lines fell short of estimates. The company has recorded lower-than-expected top-line results for nearly 12 straight quarters now, only with the exception of the fourth quarter of fiscal 2015.

Though the company reiterated its outlook for fiscal 2016, its soft comparable-store sales and weak margins trends are expected to hurt results throughout the year.

Consequently, estimates have been witnessing a downtrend. Over the past 60 days, the Zacks Consensus Estimate of $4.76 and $4.97 for fiscal 2016 and fiscal 2017 has decreased 12 cents and 18 cents, respectively.

Nonetheless, Bed Bath & Beyond remains focused on strategic initiatives like store expansion, eCommerce enhancement and improvement of customer services, which act as growth catalysts. Also, it recently concluded the acquisition of One Kings Lane Inc., an online home furnishings retailer, to further its mission of being a one-stop shop for home goods. This move may enable it to counter competition from eCommerce giant, Amazon.com, Inc. AMZN.

Stocks that Warrant a Look

Some better-ranked stocks in the same industry include Big 5 Sporting Goods Corp. BGFV and Dick's Sporting Goods Inc. DKS, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Big 5 Sporting has a long-term earnings growth rate of 12%. The stock has jumped nearly 63.7% year to date.

Dick's Sporting, with a long-term earnings growth rate of 12.3%, has gained roughly 55.8% year to date.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
AMAZON.COM INC (AMZN): Free Stock Analysis Report
 
BIG 5 SPORTING (BGFV): Free Stock Analysis Report
 
DICKS SPRTG GDS (DKS): Free Stock Analysis Report
 
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research