William Blair Downgrades Bed Bath & Beyond To Market Perform Amid Growing Competition Concerns

In a research report published yesterday, William Blair analyst Daniel Hofkin downgraded his rating on Bed Bath & Beyond (NASDAQ:BBBY) from an Outperform to a Market Perform, amid concerns over the company’s above-average exposure to growing e-commerce competition. No price target was assigned.

Hofkin wrote, “We acknowledge that Bed Bath remains a strong retail operator, in terms of in-store merchandising (quality of display and breadth of product/brand offerings), a more entrepreneurial store-level culture than the average retailer, and still-above-average margins and ROIC. Moreover, while e-commerce is still a low-single-digit percentage of sales (by our estimates), the company has begun to make more aggressive investments over the past 18 months to enhance its multichannel capabilities, and the newer websites for Bed Bath and buybuy BABY (launched in summer 2013) are considerably improved from their prior versions.”

The analyst continued, “Still, we believe that Bed Bath let too much time pass before starting to develop a strong multichannel platform and that competition from e-commerce players and retailers with more developed multichannel platforms will likely continue to intensify. We estimate that Bed Bath is likely to remain in stepped-up investment mode for a number of years, as it works to make its pricing (and pricing image) more competitive, develop more targeted and dynamic marketing (based on customer- level basket analysis), and invest further in a state-of-the-art multichannel supply chain (particularly e-commerce fulfillment centers). Thus, while we believe that Bed Bath is making advisable strategic moves at this point, we estimate that operating margins and ROIC could remain under pressure for some time, and it can be difficult for retail stocks to outperform the market against this sort of backdrop (even if these headwinds are already somewhat discounted by investors).”

According to Tipranks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Daniel Hofkin has a total average return of -1.2% and a 57.1% success rate. Hofkin has a 4.3% average return when recommending BBBY, and is ranked #2547 out of 3311 analysts.

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