Bed Bath Drops 9% In Pre-Market As Sales Sink 49%; Merrill Lynch Raises PT

Shares in Bed Bath & Beyond (BBBY) plunged 9% in pre-market trading after the home goods retailer reported a 49% decline in net sales in the first quarter due to temporary store closures during the coronavirus pandemic.

The stock dropped to $9.45 in Thursday’s pre-market trading as the retailer announced that it will close about 200 of its stores over the next two years to cut costs. Net sales in the first quarter dropped 49% to $1.3 billion year-on-year falling short of the $1.39 billion estimated by analysts. Bed Bath reported an adjusted net loss of $1.96 per diluted share for the period compared with adjusted net earnings of $0.12 per diluted share during the same quarter last year. Analysts had expected the retailer to post an adjusted loss of $1.22 per share.

Meanwhile, net sales from online channels grew 82% during the reported period and made up almost two-thirds of total sales.

“The impact of the COVID-19 situation was felt across our business during our fiscal first quarter, including margin pressure from the substantial channel shift to digital,” Bed Bath CEO Mark Tritton said. “With nearly all stores now open, we are encouraged by early customer response, including continued strong demand, in excess of 80%, across our digital channels during the month of June, bolstered by the expansion of our Buy-Online-Pick-Up-In-Store (BOPIS) and curbside pickup services.”

The retailer expects its cost restructuring actions, including the planned store closures, to generate annualized savings of between $250 and $350 million, excluding one-time costs.

Bed Bath shares have already dropped 40% this year and with the average price target set by analysts at $8.27, the stock is poised to decline another 21% over the coming year. (See BBBY stock analysis on TipRanks)

Meanwhile, Merrill Lynch analyst Curtis Nagle sees room to raise the price target on the stock to $16 (54% upside potential) from $14.5 and keep his Buy rating intact, saying that valuation does not reflect big changes in the works.

“Sales in June imply a strong acceleration through the month and other big positives include: a large cost reduction program; a commitment to taking out unproductive stores and; a continuation of strong online sales,” Nagle wrote in a note to investors. “We continue to believe the market is significantly undervaluing a turnaround of the core Bed Bath business.”

The rest of the Street is sidelined on the stock. The Hold analyst consensus shows 5 Holds and 3 Sells versus 4 Buys.

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