Bed Bath & Beyond Continues to Fight Uphill Battle

Third-quarter results for no-moat

While the company continues to focus on the customer, reiterating its priorities on assortment, services and solutions, and the consumer experience, we don’t think these efforts are enough to differentiate Bed Bath from its competitors that are undertaking similar efforts, supporting our no-moat thesis. This renders our long-term prognosis of the business unchanged. We still believe the company is fighting an uphill battle on the brick-and-mortar side of the business, as evidenced by comparable-store sales that declined in the low-single-digit range during the fiscal third quarter. As a result of this ongoing trend, we expect two outcomes: The company will continue to close namesake Bed Bath stores through attrition, and it will continue to invest in its online platform, keeping selling, general, and administrative expenses as percentage of sales elevated over the remainder of our forecast (at around 30% on average) versus historical levels (27% over the past decade). This keeps our operating margins around the level we anticipate in fiscal 2017 (6%) over the remainder of our forecast.

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