Bed Bath & Beyond Inc. (NASDAQ:BBBY) Might Be Profitable In Future

Bed Bath & Beyond Inc. (NASDAQ:BBBY) recently reported its second quarter earnings, which missed expectations due to a number of factors such as declining margins and lower same store sales.

The company has historically operated with higher margins than its competitors in the retail industry have, but has recently reported declining margins and overall returns due to falling foot traffic in most malls and immense competition from Amazon.com, Inc. (NASDAQ:AMZN).

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Although the threat from Amazon is here to stay, which means it is highly likely that the company might have to contend with lower margins in future in order to compete effectively with Amazon, the company still has significant potential for future growth.

Bed Bath & Beyond has invested heavily in its online business, which has posted double-digit growth in the past 13 quarters and currently contributes about 15% of the company’s overall sales. Although the company reported a 1.7% decline in gross sales, this situation should not worry investors as all brick and mortar retailers are dealing with a shrinking top line.

Despite the shrinking top line, the company has not reported a dramatic drop in sales as compared to other retailers. In fact, the sales decline puts the company at par with other physical retailers given that the retailer had previous sales figures that were higher than those of their competitors.

The company had reported a slight increase in overall sales during the first quarter, which is evidence of its strong position in the physical retailer industry. This was despite the fact that the company is suffering from declining foot traffic to many of its stores, just like other brick and mortar retailers.

The company faces stiff competition from other retailers such as Kirkland's, Inc. (NASDAQ:KIRK) in some categories. However, the company is still profitable and despite the weak second quarter earnings and the reduced fiscal 2017 earnings guidance, the company is still well positioned in the burgeoning ecommerce market.

The company’s future profitability is likely to come from its online consumer platforms, which will cushion the company from the falling sales at its physical stores. The question remains whether Bed Bath & Beyond is a good retail stock with excellent future growth prospects.

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