Ahead of the Bell: Bed Bath & Beyond
Analyst says investors may pause on Bed Bath & Beyond due to weakening margins
NEW YORK (AP) -- While Bed Bath & Beyond shares have been benefiting from the recovery of the housing market, a Jefferies analyst said Monday that declining profit margins may begin taking a toll on its stock.
Analyst John Marrin said in a client note that Bed Bath & Beyond Inc.'s stock has done well this year because investors have been looking for housing-related names to buy.
The home products company's shares are up 25 percent for the year to date.
Marrin says the chain's operating margin will likely continue to fall after climbing to 16.5 percent two years ago. The analyst is predicting 14.6 percent operating margin for fiscal 2014 and 13.9 percent for fiscal 2015. Marrin said the consensus from analysts is for a 14.8 percent operating margin in 2014 and 15 percent in 2015.
Marrin doesn't think the consensus forecast of 15 percent is plausible considering that Internet sales, which weaken margins, are making up a large portion of the growth.
The analyst anticipates first-quarter comparable sales will likely be satisfactory, as Bed Bath & Beyond seemed to have a strong March and April, followed by a bit of softness in May. Traffic seems to be picking up, but not in large numbers, he added.
Bed Bath & Beyond is expected to report is first-quarter results after the market close on Wednesday.
Marrin maintained a "Hold" rating and $71 price target.
A representative for Bed Bath & Beyond did not immediately respond to an email seeking comment.
Bed Bath & Beyond shares finished at $69.99 on Friday. They are down 3.3 percent from their 52-week high of $72.36 on June 19. They traded as low as $54.33 last December.
