Here’s What Caused Bed Bath & Beyond’s Big Miss This Quarter

Blame it on Delta, blame it on the supply chain, blame it on a misstep on its promotional strategy: you can blame all three for Bed Bath & Beyond’s disappointing quarter that is putting a least a temporary hold on the retailer’s promising turnaround.

In reporting flat comp store sales, big hits to its EBIDTA and gross margins and ultimately to its bottom line – all missing analysts’ consensus forecasts by significant levels — the big box home furnishings chain blamed both external and internal factors for what CEO Mark Tritton called a “disruptive quarter.” In pre-market trading Thursday morning the company’s stock fell as much as 20%.

More telling, he doesn’t expect the rest of the fiscal year to make up for this second quarter, issuing guidance of “comparable sales of flat to up slightly” through the fourth quarter, with other metrics also being dialed back.

Tritton defended the company’s efforts, saying “We’re in the second quarter of a 12-quarter transformation. Our destination remains the same but our journey has slightly changed.”

That journey was hit hard by three big factors during this quarter, which showed adjusted earnings of just four cents a share versus 50 cents a year ago:

• The spread of the Delta variant of Covid took a big hit on retail store traffic in August, the company said. “Following solid growth in June (up 24% during the early weeks of the quarter, he said) we saw unexpected, external disruptive forces towards the end of the quarter that impacted our outcome. In August, the final and largest month of our second fiscal period, traffic slowed significantly and, therefore, sales did not materialize as we had anticipated. As COVID-19 fears re-emerged amid the on-going Delta variant, we experienced a challenging environment. This was particularly evident in large, key states such as Florida, Texas and California, which represent a substantial portion of our sales,” about 30% of the company overall. Other retailers in the home space, like Williams Sonoma and RH, that reported strong quarters had earlier time periods that didn’t include the later summer when the Delta variant reversed much of the earlier resurgence in retail traffic.

• The supply chain logjam, increased costs in shipping and shortages caused by the global situation also hit BBB BBBY . “Unprecedented supply chain challenges have been impacting the industry pervasively, and we saw steeper cost inflation escalating by month, especially later in the quarter, beyond the significant increases that we had already anticipated. This outpaced our plans to offset these headwinds. These factors impacted sales and gross margin.”

• While the first two factors were external, Tritton said another issue was internal as Bed Bath dialed back its use of direct mail promotions, “pivoting away from circulars too far” in favor of digital efforts. He said the company didn’t see the impact of this “misfire” until well into the quarter, too late to reverse course to have an impact. Going forward he said promotions are being better balanced. “This one was on us. We need to continue to drive traffic to our stores.”

There were bits of good news amidst the bad. The BuyBuyBaby division, which Tritton said depends less on circulars to drive traffic, benefited from the return of the apparel business and saw a double-digit gain in its sales. The series of owned brands that Bed Bath has rolled out this year continue to outperform the overall store, as do those locations around the country that have been remodeled. Its same-day delivery program was enhanced with the addition of DoorDash this month to previous partners Roadie and Shipt. And both cash flow and liquidity remain in good positive positions, he said.

Going forward, Tritton, who has overseen a generally upbeat story since his arrival nearly two years ago, said he remains optimistic “but measured in our attitude. We have our work to do in the third quarter.”