Bed Bath & Beyond Shipping, E-Commerce Costs Hurt Profit

(Bloomberg) -- Bed Bath & Beyond Inc.’s shares plunged after higher shipping and e-commerce costs eroded profitability in the fourth quarter, tarnishing the results as the home-furnishings retailer reported a stronger-than-expected same-store sales gain.

The increase in online sales and freight expenses led to higher costs for the company, contributing to a gross margin of 31.5%, which was below the estimate compiled by Bloomberg. Those costs aren’t being passed on to consumers, Chief Executive Officer Mark Tritton said in an interview.

“We’re absorbing those costs and we’ve been able to have it offset with some of the benefits in the business,” he said. Some of the impact has been countered by a focus on more profitable products and optimizing the retailer’s strategy on markdowns.

Bed Bath & Beyond shares fell as much as 15% in New York trading Wednesday. The stock had soared more than 400% over the past year through Tuesday’s close.

Fourth-quarter same-store sales rose 4% for the company, beating the 0.3% estimate compiled by Consensus Metrix. The key retail measure is a sign the chain’s online strategy is resonating and it’s still attracting new customers.

Despite the cost pressure, Bed Bath & Beyond is being bolstered by consumers’ pandemic habits of spending more on their homes and turning them into more comfortable office and entertainment spaces. The retailer plans to launch several private-label brands focused on bedding and bath essentials and it continues to ramp up its digital services, such as self-checkout and in-store pickup for online orders.

“Our results have really been about the transformation efforts and our strategy taking hold,” Tritton said. He predicted consumers’ higher spending on home-related goods is “going to be here for the next couple of years.”

Same-store sales for Bed Bath & Beyond’s namesake brand increased 6% for the quarter, which ended Feb. 27. Sales for the full company, which includes Buybuy BABY, were $2.6 billion, declining from the same period a year earlier following the sale of noncore businesses and the closing of less-profitable locations.

The retailer said it would increase share buybacks planned for this fiscal year to $325 million from $300 million.

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