One look at Bed Bath & Beyond's (BBBY) fiscal fourth-quarter results and you can see why some activist investors are getting cranky.
The Union, N.J.-based company reported losses thanks to an impairment charge. If you exclude the charge, the company was profitable, but earnings declined year over year. This continues a very nasty trend for Bed Bath & Beyond.
Total sales decreased 11% year over year to $3.3 billion. It's worth noting that there was an extra fiscal week last year that affected the sales difference. Comparable sales declined 1.4%.
An operating loss of $296.7 million contrasted with operating income of $337.1 million the year before. This included a $510 million in goodwill and impairment charges. Excluding these impairments, Bed Bath & Beyond had diluted earnings per share of $1.20 vs. $1.41 a year ago.
For the full year, BBBY reported adjusted diluted earnings of $2.05 per share, translating to net income of $275.4 million. That's a roughly 32.5% decline year over year compared to $3.04 per diluted share last year. Full-year comp sales declined 1.1%.
Bed Bath & Beyond noted that weak store sales were countered somewhat by strong performance in digital avenues. Obviously, these moves in digital were not enough to bolster the bottom line.
Through the last few years, we've watched Bed Bath & Beyond take a great deal of hits. Revenues have been maintained at the price of earnings, but the revenue growth hasn't been enough to justify much confidence. If you look at the last five years, net income has fallen at increasingly higher rates, while the costs associated with keeping revenues stable have yielded single-digit percentage increases annually. The trends aren't balanced, and BBBY is struggling to keep things steady.
The stock declined more than 10% in after-hours trading Wednesday (at the time of writing).
On an adjusted basis, BBBY's full-year earnings of $2.05 per share give the stock a trailing P/E ratio of around 8.5. That's pretty darn cheap, but BBBY has been cheap for a while. Overall, I don't think that means this stock is on sale.
When you look at the company's guidance, there's not much to be excited about. The company expects diluted earnings per share this year of $2.11 to $2.20 (excluding certain expenses expected to be incurred in the first quarter related to severance and shareholder activity fees).
Based on that guidance, the stock is conservatively trading at around 8.2x forward full-year earnings. So, basically nothing has really changed. If anything, the stock is less appealing now than it was before.
With no sign of any real strength in earnings expectations, I don't see how BBBY can gain any momentum outside of the ongoing drama over activist investors' attempts at ousting board members. If they do succeed in such activities, we're looking at more of a momentum trade than a meaningful cause for a long position.
Even with a new board, Bed Bath & Beyond would still face the problems facing all bricks-and-mortar retailers. The company has to find a balance between online and physical sales. There are very few names that are successfully doing that at present.
Long-term debt did decrease slightly year over year to just under $1.49 billion as of March 2, 2019, and the company has cash. But it doesn't change the fact that sales and earnings momentum does not seem to be on this company's side.
A push to sell weak assets would definitely give us some bumps, but again, that's more for traders than investors. I view BBBY as a hold. If investors do succeed in a boardroom shakeup, perhaps things might change a bit in terms of unlocking some value, but I remain skeptical until that comes to fruition.