Recent Results Confirm The Main Problems Remain
Bed Bath & Beyond (BBBY) has recently posted another disappointing quarter.Net sales were just slightly up (+0.40%), comps were down a bit (-0.6%) and below the top line, the old problems are still as evident as before. The company's increasing promotional activity and excessive reliance on coupons to drive store traffic and sales have been pressuring margins for years. They are the factors that made BBBY a value trap. BB&B's stock price has been able to decline more than 75% from the top reached in 2013 and failed to take part in the overall retail sector turnaround that characterized the last 4-5 quarters, mainly as a result of the aforementioned margin weakness. Things didn't change much in Q1, and results confirmed the company is still experiencing margin pressures.
Gross margin in Q1 was approximately 35% of net sales as compared to approximately 36.5% in the first quarter of last year - which translates into a 150bps decline in a context of significant improvements in the whole retail space after two difficult years. Once again, the company said that the decrease was primarily due to increases in coupon expense and net direct-to-customer shipping expense. The increase in coupon expense was the result of an increase in the average coupon amount, partially offset by a slight decrease in the number of redemptions.
