Why Contrarians Won't Clean Up in Bed Bath & Beyond -- Ahead of the Tape

By Steven Russolillo 

It isn't easy finding a stock that is hated more than Bed Bath & Beyond Inc.

Only two of the 27 analysts who cover the struggling home-goods retailer recommend investors buy the stock, according to FactSet. Considering how lopsidedly optimistic analysts can be, that is even starker than it seems. Just 13 S&P 500 companies garner a lower proportion of "buy" recommendations.

Bearish analysts are often a great contrarian indicator, but investors shouldn't be tempted to zig while analysts zag on this stock. From shriveling margins to weak same-store sales, the negativity is justified heading into Bed Bath & Beyond's earnings report on Wednesday.

Those same analysts estimate fiscal fourth-quarter earnings of $1.77 a share, down 4.3% from a year ago. Revenue for the period ending in February is expected to have ticked up by 2.4% to $3.5 billion. Same-store sales, which have dropped in four of the past five quarters, are expected to edge 0.3% higher.

Bed Bath & Beyond, which sells everything from bedding and kitchen appliances to coffee makers and vacuums, has been slow to adapt to Amazon.com Inc.'s increasing dominance. It has suffered from changing shopper habits and been hurt by the downturn weighing on many traditional brick-and-mortar retailers.

Late to the e-commerce game, Bed Bath & Beyond is now investing heavily in its online presence and experimenting with a new membership model. As a result, the company's already depressed margins have been squeezed further as it sells more online.

While many retailers including Macy's Inc., J.C. Penney & Co. and Sears Holdings Corp. have taken the difficult step of closing a significant number of stores, Bed Bath & Beyond has bucked the trend. It operates 1,541 locations across its brands, up from 1,496 three years ago.

"It's not that we are trying to get bigger or there's nothing about ego here," Bed Bath & Beyond's Chief Executive Steven Temares said on an earnings call in December. "It's all about being better...I mean, we'll close stores when they make sense to close them."

It is a move investors and analysts might want more than he thinks. Shares are already down 20% over the past year and have lost half their value since early 2015.

Earnings typically don't provide investors much relief either. The stock, which currently trades near its lowest level since September 2010, hasn't had a double-digit percentage jump in the day following an earnings report in at least the past five years.

Roughly one-quarter of Bed Bath & Beyond analysts have "sell" ratings on the stock. That is high; only 6% of all analyst ratings on S&P 500 companies are sells.

For once, though, Wall Street looks like it has a popular call right.

(END) Dow Jones Newswires

April 04, 2017 15:26 ET (19:26 GMT)

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