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Blood Bath and Beyond → $BBBY Misses Again  - AdobeStock 290442126 Editorial Use Only

With the best consumer home environment of our lifetimes BBBY delivers an ugly print in both absolute terms and relative to expectations.

Versus 2019 sales slowed to -27%, gross margins compressed 190bps yy and “adjusted EBITDA” margin fell -310bps yy while the company barely made net income on an adjusted basis. 

That means a 92% headline EPS miss on a 3% revenue miss. The company is blaming the delta variant, noting traffic slowed significantly in August including in key states of FL, TX, CA. 

Then of course there is the supply chain cost pressure that everyone is seeing.

The company is significantly cutting 2021 guidance (~45%) with 3Q about 25 cents below consensus, leaving 4Q roughly in-line with the street though with a wide range. 

This environment highlights one of the biggest problems with BBBY, it’s a perpetual share loser. The “vs 2019” revenue growth spread for 2Q vs WSM (their fiscal quarters are 1 month shifted, perhaps slightly hurting BBBY) was 70 POINTS!

The model is suffering from years of underinvestment and excessive cash return under old management. We have been a broken record saying we do not think the BBBY model is fixable in terms of driving material long term value creation.  

It’s not going to become a great stock with store closures.  

Perhaps it’s trying to make some changes, the company has had recent press releases around same day delivery with Doordash… but who needs a cake mixer within hours? 

The value proposition for the marginal consumer has simply deteriorated too much. We remain short BBBY.