One of the most closely watched earnings announcements of the week will come after the close Wednesday. Bed Bath & Beyond (BBBY) is expected to report $2.6 billion in revenue and $1.01 in earnings per share. The company, which is usually a model of quiet consistency, dropped a bomb on investors last quarter after reporting a disastrous fiscal first quarter. The stock fell out of bed, declining 20%. But since then, investors have cuddled up to the shares. The stock has rebounded and it seems investors are expecting great things from the second quarter -- but should they?
By any measure, Bed Bath & Beyond's first quarter was shocking. The May quarter saw the steepest gross margin decline since 2008 (to 39.9%) and the lowest same-store sales comparison (3%) since 2009. A year earlier, Bed and Bath produced a 7% comp and a 40.64% gross margin. First-quarter revenue grew just 5% year over year. Investors who had been paying attention hadn't been surprised by the first-quarter slowdown -- it was the slowest first quarter in quite a while. In the first quarter of fiscal 2010, for example, revenue grew 13.5%. In the following year, sales rose 9.7%. So 5% is a hot mess.
Total revenue has also been caught in a slowdown. In fiscal 2011, total revenue climbed 11.9%, and last year the top line rose 8.5%. But, for the current fiscal 2013, the consensus is expecting a huge year-over-year jump in total revenue -- up almost 15%. Holy bathmat!
To get to the consensus estimate, the fourth quarter has to be a monster -- up 23% over a year earlier That equates to $3.377 billion in revenue. But last year, fourth-quarter sales were only up 9%. The year before, fourth-quarter revenue rose 11.6%. So 23% seems a remote possibility at best. That's a lot of bathrooms that need to be redecorated.
After years of beating "conservative" guidance, I don't think Bed Bath & Beyond can beat second-quarter estimates by the margin to which investors have grown accustomed. I myself am short ahead of the second-quarter announcement. I am betting management will have to guide down the third quarter, and especially the fourth. Management will most likely blame the economy, the weak housing market and poor job growth -- and they would be right. Nobody is getting a good night's sleep in this economy.