Bed Bath & Beyond's First Quarter Fails to Impress Wall Street

This week, the specialty home goods retailer Bed Bath & Beyond reported first-quarter earnings for fiscal 2014 on June 25, 2014. Results failed to impress investors on Wall Street, sending company shares falling upwards of 9.2% by late morning the following day. Despite the improvements Bed Bath & Beyond has made to its omni-channel business, in-store data systems and technologies, along with boosting product assortment, it appears the company needs to do even more if it hopes to deliver higher revenue and profit gains. For now, let's take a closer look at what upset investors about the company's performance in the first quarter ended May 31, 2014.

Another disappointing quarter
While Bed Bath & Beyond's first-quarter earnings were slightly better than the company's fourth quarter, in which revenue fell 5.8% and net income fell 4.8% from the previous year, growth was still lacking for the home goods retailer. For instance, net income remained relatively flat, with the company reporting earnings per diluted share of $0.93, which is also what Bed Bath & Beyond reported in the first quarter of fiscal 2013; however, profit was slightly higher, at $202.5 million, than the previous year's $187.1 million.

Net sales also fell short of expectations, increasing by only 1.7% to $2.657 billion from $2.612 billion. While comparable sales, which take into account the company's stores open for at least one year, increased by 0.4% for the quarter, this is much different from the first quarter a year ago, in which comparable sales increased 3.4%. Even the company's gross margin decreased to 38.8% for the quarter compared to the same period a year ago, in which the gross margin was 39.5%. This means the average profit margin across all of the company's products fell year over year.

The specialty retailer's outlook for the second quarter was especially disappointing. Within its first-quarter earnings release, Bed Bath & Beyond announced EPS guidance of $1.08 to $1.16 in the second quarter, whereas analysts expected earnings of $1.19 a share. When a company expects lower earnings than analysts expect, it's never greeted kindly on Wall Street, and this time was no exception.

Competing for home-goods sales
When Bed Bath & Beyond's first-quarter results are compared to those of competitors Target and Wal-Mart Stores , things don't seem that bad. Both Target and Wal-Mart, which reported first-quarter earnings in May, stated their own reasons for their weak earnings. For instance, Wal-Mart blamed the chilly temperatures, while Target made reference to lingering implications of its data breach for the company's lack of profit.

First Quarter Fiscal 2014 Results

Based on these figures, Bed Bath & Beyond appears to be making progress. Now that Bed Bath & Beyond has revamped its website, along with launching a new one for buybuy BABY to give customers a more user-friendly shopping experience, comparable sales will likely increase throughout the current fiscal year. As for Wal-Mart, it is unlikely sales will turn around in the near future. The same could be said for Target's comparable sales, which will also not likely see an increase in the near future -- at least until consumers feel they can trust the company's security when it comes to their personal credit card information. Bed Bath & Beyond clearly had a better first quarter than its competitors, especially in terms of growing its net profit, even though the company's results were less than mediocre in the eyes of investors.

Foolish takeaway
Bed Bath & Beyond didn't quite deliver on the growth investors had expected, but it's important to keep in mind the company's performance compared to its big cousins, Target and Wal-Mart. Bed Bath & Beyond was the only retailer of the three to deliver comparable-store sales gains and net income growth in the quarter. While shareholders may be disappointed, and probably rightly so, they should keep in mind that Bed Bath & Beyond appears to be one of the stronger retailers out there today. Foolish investors would be wise to take these points into consideration when evaluating Bed Bath & Beyond's shares.