A daunting combination of lackluster sales and higher expenses produced a double-digit drop in Bed Bath & Beyond’s second-quarter net income.

Net income in the quarter, which ended on Aug. 27, totaled $167.3 million, down 17 percent from last year’s second quarter. Net sales finished the quarter relatively flat at $3 billion and included a 1.2 percent drop in same-store sales. Selling, general and administrative expenses rose 5.7 percent in dollars and 157 basis points as a percentage of sales, to 28 percent.

Financial analysts who cover the Bed Bath stock said the results were to be expected, given the broader weakness in the retail sector as a whole and Bed Bath’s ongoing investments in its omnichannel effort. Brad Thomas, analyst with Keybanc Capital Markets, said the results reflected “a challenging consumer backdrop” in a research note on Bed Bath’s results. “Results are not surprising in the context of the broader slowdown we have seen in this sector,” added Seth Sigman, analyst with Credit Suisse Securities, also in a research note.

In spite of the laggard second quarter, Bed Bath’s investments have helped it move closer to success in its omnichannel effort, CEO Steven Temares told financial analysts during a conference call yesterday. “We are making great progress in improving our capabilities everyday,” he said. “We are evolving toward providing a more inspirational and personal shopping experience, with an expanded offering which includes a more differentiated product mix and enhanced services and solutions for our customers.” In fact, comparable sales from Bed Bath’s digital channels increased by more than 20 percent in the quarter.

A crucial element in expanding its merchandise offering is Bed Bath’s acquisition of One King’s Lane, the online home décor retailer, which took place in June. “One Kings Lane will serve as a cornerstone for Bed Bath & Beyond’s growing offerings in furniture and home décor,” Temares said. “Over time, we believe One Kings Lane will provide us an opportunity to improve the overall experiential environment of the services and solutions we offer through design services and studio locations.”

The financial community expressed its support for these initiatives. “We like [Bed Bath’s] efforts to differentiate its assortment and diversify into new categories online that can help drive incremental sales, without taking the inventory risk,” Sigman said. Regarding furniture in particular, he added, “We believe the early response has been positive and the category is growing.”

Even so, results in future quarters could still feel the pressure of the overall retail environment, Thomas said. “Unfortunately, we believe competition is intensifying (from both online and offline retailers) and [Bed Bath] could face a maturing housing cycle, as well,” he said. “Factors that have pressured results in recent years are likely to continue.”

(Source: hfndigital.com  Author: David Gill)