What Will Bed Bath & Beyond Do Post-Earnings?

With shares of Bed Bath & Beyond (NASDAQ:BBBY) trading around $56, is BBBY an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Bed Bath & Beyond operates a chain of retail stores. It sells a range of domestic merchandise, including bed linens and related items, bath items, and kitchen textiles; as well as home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and certain juvenile products. The company also offers health and beauty care items, giftware and household items, and infant and toddler merchandise. Bed Bath & Beyond operates stores under the names of Bed Bath & Beyond, Christmas Tree Shops, Harmon or Harmon Face Values, buybuy BABY, World Market, Cost Plus World Market, and Cost Plus. In addition, it provides various textile products, amenities, and other goods to institutional customers in the hospitality, cruise line, food service, healthcare, and other industries.

Bed Bath & Beyond on Wednesday reported net earnings of 93 cents per diluted share ($187.1 million) in the fiscal first quarter ended May 31, compared with net earnings for the fiscal first quarter of 2013 of 93 cents per diluted share ($202.5 million). Net sales for the fiscal first quarter of 2014 were approximately $2.657 billion, an increase of approximately 1.7 percent from net sales of approximately $2.612 billion reported in the fiscal first quarter of 2013. Comparable sales in the fiscal first quarter of 2014 increased by approximately 0.4 percent, compared with an increase of approximately 3.4 percent in last year’s fiscal first quarter. During the fiscal first quarter of 2014, the company repurchased approximately $273 million of its common stock, representing approximately 4.2 million shares. As of May 31, the remaining balance of the existing share repurchase program authorized in December 2012 was approximately $861 million.

T = Technicals on the Stock Chart Are Weak

Bed Bath & Beyond stock has struggled to make significant progress in recent times. The stock may need time to consolidate as it trades near lows for the year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Bed Bath & Beyond is trading below its rising key averages, which signals neutral to bearish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Bed Bath & Beyond options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Bed Bath & Beyond options

21.43%

23%

20%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of Thursday, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Bed Bath & Beyond’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Bed Bath & Beyond look like and more importantly, how did the markets like these numbers?

2014 Q2

2014 Q1

2013 Q4

2013 Q3

Earnings Growth (Y-O-Y)

0%

-4.76%

8.74%

18.37%

Revenue Growth (Y-O-Y)

1.72%

-5.82%

6.03%

8.91%

Earnings Reaction

-7.51%

-6.16%

-12.46%

4.47%

Bed Bath & Beyond has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Bed Bath & Beyond’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Bed Bath & Beyond stock done relative to its peers – Kirkland (NASDAQ:KIRK), Pier 1 Imports (NYSE:PIR), and The Fresh Market (NASDAQ:TFM) — and sector?

Bed Bath & Beyond

Kirkland

Pier 1 Imports

The Fresh Market

Sector

Year-to-Date Return

-29.8%

-27.1%

-33.9%

-16.7%

-25.89%

Bed Bath & Beyond has been an average performer, year-to-date.

Conclusion

Bed Bath & Beyond operates a chain of retail stores. The company on Wednesday reported second-quarter earnings. The stock has struggled to make significant progress in recent times and is currently trading near lows for the year. Over the last four quarters, earnings and revenue figures have been on the rise. However, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, Bed Bath & Beyond has been an average year-to-date performer. WAIT AND SEE what Bed Bath & Beyond does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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