Supply Chain Woes, Inflation Catch up with Retailers

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I am bearish on Bed Bath & Beyond (NASDAQ:BBBY). (See Bed Bath & Beyond stock charts on TipRanks)

Slower Traffic, Compress Margins

Bed Bath & Beyond reported financial results on Thursday for the second quarter of fiscal 2021.

Net sales of $1.99 billion missed analyst expectations. Comparable sales decreased 1%, reflecting subdued traffic in August as the re-emergence of COVID-19 and higher inflation kept shoppers out of stores. Higher freight costs compressed margins.

Mark Tritton, Bed Bath & Beyond President and CEO, tried to stay upbeat for the future.

“While our results this quarter were below expectations, we remain confident in our multi-year transformation,” he said. Nonetheless, he pointed to the challenging environment retailers face in recent months.

“Following solid growth in June, we saw unexpected, external disruptive forces towards the end of the quarter that impacted our outcome. In August, the final and largest month of our second fiscal period, traffic slowed significantly and, therefore, sales did not materialize as we had anticipated.”

Compounding the problem of slowing traffic was supply chain woes, compressing margins further.

“Furthermore, unprecedented supply chain challenges have been impacting the industry pervasively, and we saw steeper cost inflation escalating by month, especially later in the quarter, beyond the significant increases that we had already anticipated,” Tritton added. “This outpaced our plans to offset these headwinds. These factors impacted sales and gross margin.”

Retail isn’t the only industry facing supply chain woes. Last week, homebuilders and express package carriers reported similar concerns, suggesting that the problem is beginning to spread across industries.

Wall Street’s Take

Wall Street didn’t like what it saw in Bed Bath & Beyond’s report, sending its shares sharply lower in Thursday’s regular trading session.

Shares of Kohl’s (NYSE:KSS), Macy’s (NYSE:M), and Target (NYSE:TGT) followed suit as investors ran for cover. 

TipRanks assigns a Smart Score of 2 out of 10 to BBBY, citing weak technicals, decreased hedge fund activity, and increased insider selling.

Forecast

Bed Bath & Beyond’s problems could be more the result of competition from online sales, and less to industry woes.

Nonetheless, the 11 Wall Street analysts following the company have an average price target of $19.78, with a high forecast of $28, and a low forecast of $14. The average Bed Bath & Beyond price target represents 17.7% upside potential.

Only time can tell whether these analysts are correct.

Disclosure: At the time of publication, Panos Mourdoukoutas owned shares of Target.

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