If you have not seen, Bed Bath and Beyond just delivered an earnings BEAT, on both the top line, and the bottom line. The dividend has also been hiked. However, guidance was weak, and shares are now tanking:

We want to offer a few key thoughts here.

They had 700 million in cash end of Q4. That is a lot of money.

“Based upon its planning assumptions for fiscal 2018, as will be described in the conference call, the Company is modeling net earnings per diluted share for the full year to be in the low-to-mid $2.00 range. ” This is a guide down from $2.76 (per Yahoo Finance analyst estimate for 2019). That is why they are getting nailed to the wall.

What else?

With Babies R’ us going out of business along with Toys R Us, we expect that the company will indeed get a boost in its Buy Buy Baby line.

EBIT margin was 300bps lower in Q4 than the previous year. YoY, the past five years beginning in fiscal year 2103 are: 14.0%, 13.1%, 11.7%, 9.3%, 6.2%. These guys are still generating close to ~ $500mm in FCF and they are still increasing sales (whatever that means given that both gross and EBIT margins are falling off a cliff and it’s not all coming from COGS). Where’s the bottom?

Same-store sales fell, but earnings were higher-than expected. We do not think it’s because they have more stores. It is because online sales are higher-than-expected. This can only be good for margins going forward.

One idea: Some think that the guidance is down because it will aggressively mark down the inventory or promote the online as a measure to counter Amazon. In any case, their revenue guidance should be good while their earnings would be taking a hit. In any case, if this thing loses 25% of its valuation before it starts its recovery, they’d be sitting on a billion of cash with a 60% of remaining repurchase program to market cap.

Some think this means it is setting up in an attempt to take it private or have an activist on board.

Either this thing truly is going into the trash heap or it is one of those stocks where you buy it and forget about it for the next 36 months.

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