Summary
BBBY has lost 70% of its peak value. Profits are down mostly due to price competition. Store comparable sales have been falling mid-single digits, offset by growth in digital.
Management is seeking to grow revenues in key products, increase store traffic, deleverage gross margin and SG&A expenses, reduce lease costs, upgrade digital offerings and improve working capital management.
Management’s guidance and goals suggest that EPS will decline through fiscal 2019 but at a slowing rate.
At 9 times 2018 EPS and 10 times 2019 EPS, BBBY trades at a discount to peers. My price target of $30, assumes a return to EPS growth in 2020.
The stock has an attractive and reasonably safe 3.2% dividend yield.
Recent stock performance vs. benchmarks
Specialty retailers have been strong relative performers so far in 2018. The S&P Retail Select Industry Index posted a total return of 8.28% through June 29, better than the S&P Composite 1500’s total return of 2.91%. By comparison, the stock of Bed Bath & Beyond (NASDAQ:BBBY) produced a negative total return of -8.04%, extending a decline that has seen the stock lose 70% of its value over the past three years.
