Bed Bath & Beyond Inc. (BBBY) shares are headed down this morning.
Bed Bath and Beyond stock is falling in pre-market trading, dropping by 16.5% as of 8:09 a.m. in New York after the company reported earnings per share of $0.36 per share, compared to $0.67 per share in second quarter a year before.
The company reported net sales of $2.94 billion, $20 million below consensus according to Reuters data.
"The investments we are making and the different levers we are pulling across many areas of the organization are intended to drive long-term profitability, recognizing that these actions may negatively impact sales and profitability in the short-term," Chief Executive Officer Steven Temares said at the earnings call on Wednesday.
The company's numbers were particularly stung by same-store sales, which remained flat year-over-year despite a strong consumer backdrop that boosted many retail stocks this year.
Analysts were not confident that a turnaround is in sight.
"Bigger picture, given our view that BBBY was unable to post positive same store sales this last holiday season despite a robust consumer backdrop (best holiday since 2005), we find it difficult to see a turn in sight," J.P. Morgan senior analyst Christopher Horvers wrote in a note on Thursday.
As a result he lowered his price target to $14 and reiterated his underweight rating for the stock. Deutsche Bank lowered its price target to $14 as well from $17 from Loop Capital and
Of course, as with any retailer in the modern era, competition from Amazon.com, Inc. (AMZN) is a serious and concerning headwind.
Keybanc Capital Markets senior equity analyst Bradley B. Thomas zeroed in on this issue.
He explained that in a study conducted by his firm last holiday season, he found that many promotions from Bed Bath and Beyond, intended to drive price conscious shoppers to the website, were still severely undercut by Amazon's pricing.
"We found 66% of the items in the email blast had a higher price from BBBY vs. Amazon, with an average price premium of 7%," he explained. "This is another reason we remain concerned about continued margin pressure and market share risk at BBBY."
He noted that the company is losing market share even as competitors, like Toys R' Us and its Babies R Us unit, open up a free market to seize on.
"Same store sales remain negative, despite a stronger consumer backdrop and benefits on its baby business from the TRU bankruptcy," Thomas said. "From a stock perspective, we reiterate our underweight rating and lower our price target to $15 from $16."
To be sure, the company looked at its babies unit as a tailwind, but followed the confidence with a bleak forecast.
"The benefits that we see from Buy Buy BABY, we're pleased with how that's performing -- or from BABY sales, I should say," CFO Robyn D'Elia told analysts. "For the remainder of the year, and the outlook -- we did say that our net sales will be down slightly and comp store sales will be relatively flat."
In order to remain competitive in today's landscape, the company has upped its promotional efforts, which have had ill effects on margins.
"Gross margin for the quarter was approximately 33.7% of net sales as compared to approximately 36.4% in the second quarter of last year," D'Elia explained. "In order of magnitude, this decrease as a percentage of net sales was primarily due to an increase in coupon expense, a decrease in merchandise margin and an increase in net direct-to-customer shipping expense."
The decrease in margins are something that Keybanc's Bradley Thomas again picked up on.
"We remain cautious on shares of BBBY, given significant competitive headwinds facing the business," he wrote. "In the near term, margins remain under significant pressure, which we expect to continue."
The margins should be squeezed further by tariffs on Chinese imports, increasing pain for shareholders.
"Tariffs along with continued selling, general, and administrative investments, are expected to pressure EBIT margins in the back half," Credit Suisse's Seth Sigman said in his analysis of the impact.
While remaining neutral, Sigman also cut his price estimate by 10%, from $20 to $18.
As the company may be making investments toward recovery, analysts and the market are pessimistic on the outlook.