Meme-Stock Investors Ignore Weak Results at Bed Bath & Beyond
(Bloomberg) -- Bed Bath & Beyond Inc., a darling of so-called meme-stocks traders, rose sharply on Thursday despite posting quarterly sales that missed estimates and reducing its outlook.
The closely watched metric of comparable sales declined 7% -- deeper than the 1.4% projected drop by analysts surveyed by Bloomberg. The home-goods retailer also lowered its forecast for sales and adjusted earnings per share for its current fiscal year, while gross margin, excluding some items, topped expectations. The company’s buybuy BABY stores were also a bright spot, with comparable sales rising in the mid-teens.
Analysts at Wells Fargo said in a research note that the quarterly data showed “poor results and choppy execution” and attributed the share increase to elevated short interest, or bets that the stock is going to decline, as well as an upcoming round of buybacks. Jefferies analysts expressed “surprise” to see the shares gain on a weak quarter and guidance that missed expectations.
The share’s advance suggest that last year’s meme craze, in which retail traders piled into certain companies’ shares in spite of concerns on Wall Street, is still having an impact on markets.
The stock jumped the most intraday since Nov. 3 on Thursday, rising as much as 23%. As of 1:17 p.m. in New York, the stock was up 8.8%. It had fallen more than 30% in the last 12 months, among the worst performers in the S&P 600 Consumer Discretionary Index.
“These are the price movements we’ve seen with meme stocks,” said Jaime Katz, an analyst at Morningstar, who flagged short interest as a factor in the move. She also noted that the gross-margin improvement was a positive sign for the company.
Bed Bath & Beyond said it increased some prices and adjusted its discount strategy due to “pervasive freight and supply-chain headwinds.” Improving gross margin from the “missteps” of the previous quarter was a priority, Chief Executive Officer Mark Tritton said in an interview following the release of results.
Improving profitability is a key part of the company’s three-year transformation strategy, he added. New brands owned by Bed Bath & Beyond, which can command higher margins, are part of that strategy.
“It’s really important to come back and show when we can get pricing right,” Tritton said. It’s also key to boost sales of owned brands and use promotions to keep profitability up, he said.
That presents a challenge amid an inflationary environment and stubborn supply-chain challenges. A resurgent pandemic, fueled by the omicron variant, adds another unpredictable element to the mix.
“It’s definitely on everybody’s minds,” Tritton said, referring to omicron. “There’s no doubt that the nesting and home trends that were so strong in 2020 have abated.”
Covid-19 initially bolstered the company’s performance as isolating consumers splurged on items to make their homes more comfortable. Cases are surging to record levels once again, but much of the U.S. is now vaccinated, so it’s unclear how consumers will behave.
Even if demand is high, actually meeting it remains a challenge. During the quarter and into December, Bed Bath & Beyond experienced issues with on-shelf availability for key items.
Tritton said that an estimated 40% of the problem was due to orders that “didn’t materialize from our vendors, particularly in the top 200 items that are crucial.” He cited availability issues for raw materials and merchandise being stuck on a ship or in distribution centers.
“It wasn’t where it needed to be in a timely way,” Tritton said.
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