Bed Bath & Beyond Inc. (BBBY): Strong Earnings, Bleak Outlook

Bed Bath & Beyond Inc. (ticker: BBBY) shares are up more than 3.5 percent on Thursday after the company beat market expectations in its fiscal fourth quarter. But while the market is celebrating Bed Bath & Beyond’s surface-level numbers, some Wall Street analysts still see red flags.

On Wednesday, Bed Bath & Beyond reported earnings per share of $1.84 and revenue of $3.53 billion. Wall Street analysts were expecting EPS of $1.77 on revenue of $3.5 billion.

The company reported 3.4 percent year-over-year sales growth and 0.4 percent comparable sales growth. Much of its comparable sales growth in the quarter was driven by its 20 percent comparable digital sales growth.

Loop Capital analyst Anthony Chukumba says Bed Bath & Beyond only beat consensus expectations because expectations were so low to begin with.

“While BBBY’s fiscal fourth-quarter 2016 results were better than we expected, we attribute this to overly pessimistic expectations, as opposed to any fundamental turn in the business,” Chukumba writes in a new note to clients.

Operating margins (excluding one-time items) declined another 2 percent in the quarter to 12.2 percent. Margin expansion will likely be extremely difficult in the coming year considering the company’s plans to invest heavily in expanding its membership program testing, providing same-day delivery in targeted markets and launching a new customer contact center.

Jim Cramer, CNBC analyst and host of “Mad Money,” says Bed Bath & Beyond has struggled to compete in the (AMZN) era, and investors should consider the post-earnings spike as an excellent opportunity to exit their positions.

When it comes to strip mall retailers, Cramer says…

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