Bed Bath & Beyond’sstock is up 41 percent over the past 12 months. It has doubled its return over the last five years. But its shares tumbled more than 15 percent Thursday following a weaker-than-expected profit outlook for the current quarter. Is this a minor hiccup or a long-term setback for the home furnishing store?
Brian Nagel, senior equity research analyst at Oppenheimer, had an $84 price target for the stock before the report. At this point, a 30 percent upside is needed to reach that target.
“My team and I trimmed the price target today to about $80, but we very much reiterate our ‘outperform’ rating,” Nagel told CNBC. “Bed Bath remains a very solid performer, and the company has shown an ability to quickly bounce back in the past.”
Laura Champine, a Canaccord Genuity analyst, is not anticipating a “bounce back” anytime soon.
“The real point to make is that there has been a change in trend,” Champine said. “Bed Bath has just reached a point where it is tough to grow from here.”
Canaccord Genuity lowered its Bed Bath & Beyond rating two months ago, when the company reported for the first time in its history a share loss in home furnishings for the February quarter. “That trend continued and it actually worsened in the May quarter,” Champine said.
Online competitors such as Amazon.comare partially responsible for Bed Bath & Beyond’s recent loss of market share.
“Online competitors in general will likely take share from Bed Bath in the near term,” Champine said. But she urged investors to keep this in perspective: “We think Amazon did about 200 million last year in home furnishings, but Bed Bath just did 2 billion this quarter.” Champine also mentioned discount stores, such as dollar stores and Wal-Mart Stores,as competitors.
Despite the rising competition and recent loss in market share, Oppenheimer’s Nagel is anticipating a comeback.
“This is a company that’s very good at merchandising its stores and driving incremental sales,” Nagel said. “So while large numbers may have caught up with them a bit, I would not count them out at all.”
Nagel cited Bed Bath & Beyond’s proposed acquisition of Cost Plus and its increased investment in e-commerce as positive platforms for growth. The company has also introduced more exclusive linens and foods that are not sold in competing stores to boost sales.
“Let’s keep this in perspective,” Nagel said. “There’s no doubt this is a disappointment, but Bed Bath has not fallen off a cliff.”
Champine of Canaccord Genuity agrees, but her long-term outlook is not as positive. “We think that the company’s bigger issue is that it’s grown to the point of maturity,” she said.
—By CNBC.com’s Madeline Laskoski
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Neither Brian Nagel nor Laura Champine own shares of Bed Bath & Beyond.