What Bed Bath & Beyond's warning means for other retail stocks

Published Thu, Sep 30 202111:17 AM EDT

Bed Bath & Beyond shares are tanking on Thursday after the retailer warned about rampant inflation and supply chain issues. Retail analysts on Wall Street don't think these disruptions are exclusive to Bed Bath & Beyond so shareholders in the sector beware. "It's going to be more challenging for retailers in the near-term because of inflation and supply chain issues," Seth Basham, retail analyst at Wedbush, told CNBC. "You will see prices increase for consumers and that impacts demand and secondly, there could be additional out-of-stocks as we move into the peak holiday shopping season because of challenges with manufacturing products in some countries. It's an incrementally negative picture for the broader home goods and retail sector." Shares of the big-box retailer cratered 25% after the company said it saw a steep drop-off in traffic in August. Bed Bath & Beyond saw steeper inflation costs escalating over the summer months, especially toward the end of its second quarter in August, which corroded profits. Bed Bath & Beyond reported quarterly results with adjusted earnings of 4 cents on revenue of $1.99 billion. Wall Street expected earnings of 52 cents on revenue of $2.06 billion, according to Refinitiv. The home goods company slashed its revenue and earnings outlook for the year, and its third-quarter guidance looks bleak. Brian Nagel, managing director at Oppenheimer, noted that Bed Bath & Beyond reports on a February year-end, meaning its results Thursday included the month of August. Most retailers have only reported June or July quarters. "Is Bed Bath & Beyond telegraphing a worsening conditions either from the demand side or from the supply chain side?" asked Nagel, who does not cover Bed Bath & Beyond but has in the past. "I think Bed Bath & Beyond is highlighting increased pressures out there." Basham said Bed Bath & Beyond's issues are likely widespread, and will impact similar retailers like Kohl's , Macy's and TJX Companies . Shares of Kohl's fell more than 13% on Thursday as investors worried its fate is similar to its home good counterpart. Macy's and Gap fell 8% and 6%, respectively. "It will be a hit to everyone but there certainly will be degrees of hits, so there will be winners and losers," Basham added. "Those retailers that have done the best job securing capacity in ocean freight and optimizing the port flow are going to have better in-stocks and that's going to give them better sales. Similarly, those who are better at dynamic pricing will likely be able to control margins better than others." Notably, Bed Bath & Beyond said on its earnings call that the Covid Delta variant was hindering shoppers from coming into the stores. Nagel said he has not heard any other retailers cite Delta as a major overhang. "Bed Bath & Beyond, like other home retailed retailers, benefited through the Covid crisis as people were spending more time in their homes," said Nagel. Now, consumers are spending on clothing, dining out, travel and sporting events and other forms of entertainment, he added.

Shoppers exit a Bed Bath & Beyond store in New York.

Michael Nagle | Bloomberg | Getty Images