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Business

Bed Bath & Beyond (BBBY) shares tank on supply chain issues

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People walk out of a Bed Bath & Beyond store amid the coronavirus disease (COVID-19) pandemic in New York, January 27, 2021.

Carlo Allegri | Reuters

Bed Bath & Beyond shares tanked more than 25% in premarket trading Thursday as the company said it saw a steep drop-off in traffic in August, dealing a blow to its fiscal second-quarter results.

The big-box retailer is also dealing with industry-wide supply chain complications, which Chief Executive Mark Tritton said have been “pervasive.”

And the company saw steeper inflation costs escalating over the summer months, especially toward the end of its second quarter in August, Tritton said. This ate into sales and profits, he said.

Plagued by all of these obstacles, Bed Bath & Beyond slashed its revenue and earnings outlook for the year, and its third-quarter guidance looks underwhelming.

Here’s how Bed Bath & Beyond did in its second quarter ended Aug. 28 compared with what Wall Street was expecting, based on a Refinitiv survey of analysts:

  • Earnings per share: 4 cents adjusted vs. 52 cents expected
  • Revenue: $1.99 billion vs. $2.06 billion expected

In the latest period, Bed Bath & Beyond lost $73.2 million, or 72 cents per share, compared with net income of $217.9 million, or $1.75 per share, a year earlier. Excluding one-time items, the company earned 4 cents a share, which was less than the 52 cents analysts expected.

Revenue fell 26% to $1.99 billion from $2.69 billion a year earlier. That came in short of estimates for $2.06 billion.

“While our results this quarter were below expectations, we remain confident in our multi-year transformation,” Tritton said in a press release.

Bed Bath & Beyond has been remodeling its stores and launching in-house brands that sell everything from bath towels to cooking utensils to dorm decorations. In its prior quarter, it appeared as if those efforts were paying off and momentum was building in the business.

But over the summer months, that progress stalled. Tritton explained that as Covid-19 fears reemerged amid the spreading delta variant, the environment became more challenging to work through. In states like Florida, Texas and California, which account for a substantial chunk of sales, the business was hurt due to the rising coronavirus cases in the region, Tritton said.

That means not as many shoppers showed up during what is normally a busy back-to-school season for retailers like Bed Bath & Beyond. It could spell trouble for rivals like Target, Walmart and Kohl’s, which have yet to report results for the back-to-school period.

Bed Bath & Beyond expects third-quarter adjusted earnings to between breakeven to 5 cents per share, with sales ranging from $1.96 billion to $2 billion. Analysts had been looking for earnings of 28 cents per share on sales of $2.02 billion, according to Refinitiv data.

For the year, Bed Bath & Beyond lowered its expectations and is now looking to earn between 70 cents and $1.10 per share, on an adjusted basis, on sales of $8.1 billion to $8.3 billion.

Previously, it was calling for annual adjusted earnings of between $1.40 and $1.55 per share, on sales of $8.2 billion to $8.4 billion.

Analysts were forecasting adjusted earnings per share of $1.51 on revenue of $8.31 billion in fiscal 2021.

Find the full press release from Bed Bath & Beyond here.

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Business

Levi Strauss to buy yoga apparel brand Beyond Yoga

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An employee holds a shopping bag while ringing up a customer at the Levi Strauss & Co. flagship store in San Francisco, March 18, 2019.

David Paul Morris | Bloomberg | Getty Images

Levi Strauss & Co. on Thursday agreed to buy the yoga apparel brand Beyond Yoga, launching the jeans maker into the competitive activewear space.

Levi didn’t disclose the size of the all-cash deal, which is expected to close in the fourth quarter.

Levi expects the acquisition will add more than $100 million to its net revenue next fiscal year, and immediately bolster its earnings.

“We’ve been looking at acquisitions for quite some time, and the activewear space has obviously been very, very attractive,” Levi CEO Chip Bergh told CNBC in a phone interview. “We see enormous growth potential here. It puts us as a company smack into the high-growth, high-margin activewear segment.”

Levi shares were up less than 1% in extended trading on the news.

After the transaction is complete, Levi said Beyond Yoga will operate as a standalone division within its business. Co-founder Michelle Wahler will continue to serve as Beyond Yoga CEO, reporting to Bergh.

Levi CFO Harmit Singh commented that Beyond Yoga has more than doubled its revenue while growing profitability over the past three years. The brand, headquartered in Los Angeles, was founded by two women in 2005. Its marketing often echoes messages of body positivity and size inclusivity to younger girls.

Bergh said Levi plans to expand the Beyond Yoga brand outside of the United States and open more bricks-and-mortar stores. The deal should also help Levi grow its women’s business, which accounts for roughly one-third of sales today. The goal is to grow women’s to 50%, Bergh said.

Levi’s acquisition is yet another vote of confidence that an already hot retail sector is growing even hotter, as companies from Kohl’s to Target vie for a sliver of the activewear market.

On Monday, Wolverine Worldwide — the company behind Merrell, Saucony, Sperry, Stride Rite and other shoe names — scooped up Lululemon rival brand Sweaty Betty for $410 million.

Big-box chains Dick’s Sporting Goods, Kohl’s and Target have also launched their own activewear offshoots, competing with the likes of Nike, Under Armour and Gap’s Athleta banner. There are a number of other smaller start-ups in the space, ranging from Outdoor Voices to Nobull to Bandier.

Even as Americans return to the office and to socializing with colleagues, many are still opting for comfortable and casual clothing, including stretchy bottoms and sneakers.

This shifting fashion trend has been coined “workleisure,” a play on athleisure garb that can be worn from a workout class to the coffee shop. It’s fueling further growth in the activewear category.

“As some people start going back to the office, you’re not seeing suits anymore, you’re seeing people go into the office in more casual clothing, even athleisure-type products,” Bergh said. “And it’s a truly global phenomenon.”

Levi shares are up 37% year to date. Its market cap is $11.1 billion.

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Business

Four takeaways as child tax credit kicks off this month

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A woman wears a face mask while shopping for a baby shower gift during the Covid-19 pandemic, at Madison’s Niche boutique in Huntington, New York on April 21, 2021.

Alejandra Villa Loarca | Newsday | Getty Images

Child tax credit payments are an “underappreciated stimulus” that could lift sales across the retail, restaurant and travel industries — especially as shoppers emerge from the pandemic and get ready for back-to-school season, according to a research note published Tuesday by Cowen analysts.

The monthly payments, which begin Thursday, could benefit a wide range of companies, from grocers including Walmart to fast food chains such as Jack in the Box, according to the note.

Families have gotten child tax credits for years, but the American Rescue Plan made several key changes. It increased the amount per child from $2,000 to $3,000 for those between the ages of 6 and 17, and to $3,600 for each child under age 6. It qualified low-income families who have little or no taxable income. And it changed the way it is paid out, so that families receive half the money through direct deposits that run from July to December. Families will receive the other half after filing taxes.

That will translate to $250 or $300 per child each month. Families who make up to $150,000 for a couple or $112,500 for a family with a single parent, called a head of household; or $75,000 as an individual taxpayer will get the full amount. The payments will be phased out above that amount — but even those who get less money will receive advance payments.

Parents and caretakers of nearly 90% of children in the U.S. will receive the payments, according to the Internal Revenue Service.

Here are four major takeaways from the analysts:

More dollars mean more spending

The child tax credit will amount to an estimated $150 billion in stimulus over the next year, according to Cowen. Analysts at the equity research firm say the extra dollars may surprise both Americans and the economy at large, calling it “an underappreciated catalyst for discretionary consumer spend.”

As families get the money, Cowen predicts, they will spend it on food for the home, dining out and shopping online. The analysts named retailers and restaurants that are best-positioned to attract those dollars. On the grocery side, they pointed to Walmart, Target and Grocery Outlet. Among fast-food chains, they named Jack in the Box, Wingstop, Papa John’s and Darden, based on a survey of consumers that looked at their incomes and what places they frequent. And among e-commerce companies, they named Amazon.

Coinciding with ‘pent up demand’

Many families have already ramped up spending on new shoes and clothes as they emerge from their homes after getting Covid-19 vaccinations. Analysts from Cowen said that child tax credit dollars will likely feed into that spending spree.

Already, some retail industry watchers have predicted an usually hot back-to-school season as families crave a new start and a sense of more normalcy — and potentially channel that toward fresh notebooks and first-day-of-school outfits.

Cowen analysts expect that retailers that cater to back-to-school or team sports are positioned well to attract child tax credit dollars, including Walmart, Kohl’s, Foot Locker, Dick’s Sporting Goods and Nike. They also said retailers that focus on value, such as off-price retailers Burlington, Ross and T.J. Maxx, could get a boost since they cater to low-income families that are receiving child tax credit payments. They also said American Eagle Outfitters is in a good spot to attract the payments, as it caters to styles that teens crave, such as looser-fitting denim and casualwear.

Spilling over into adult categories

Parents, grandparents and other caretakers may spend some of the child tax credit dollars on themselves in the form of beer, cigarettes and plane tickets, according to Cowen.

Analysts estimated that the tobacco industry could pick up about $1.2 billion and alcoholic beverages could pick up roughly $2.7 billion of the estimated $150 billion impact of the child tax credit. That could mean good news for tobacco company Turning Point Brands and beer industry players, Constellation Brands and Boston Beer.

Cowen estimated air travel will get an approximately $1.15 billion bump from child tax credits, as the July payments arrive just in time for vacation season. That will be most noticeable for airlines that cater to leisure travel and lower prices, such as Allegiant, Frontier and Spirit, the analysts predicted.

A renewal looks likely

The monthly payments will end in December — but Cowen analysts are betting that they will be renewed. In the note, they said they expect the one-year program will be extended through 2025 through a reconciliation bill.

In the note, the analysts cited the size and scope of the government program, which is intended to fight childhood poverty. They called it a “huge policy change” that acts as “universal basic income for low-middle income parents.”

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Business

Dick’s Sporting Goods is launching its own men’s athleisure line

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VRST is debuting Tuesday on both Dick’s Sporting Goods’ website and a standalone VRST.com, and will be rolled out to more than 400 Dick’s Sporting Goods locations across the country in the coming weeks.

Source: Dick’s Sporting Goods

Dick’s Sporting Goods is entering a hotly contested market for men’s athletic apparel with the launch of its own brand called VRST.

VRST debuts Tuesday on Dick’s website and a standalone VRST.com, and will roll out to more than 400 Dick’s stores in the coming weeks, the company said. Items in the line, which include everything from joggers and shorts to tees, quarter-zips, and hooded sweatshirts, retail anywhere from $30 to $120, putting it on the higher end of the market when it comes to price point.

Following the success that Dick’s has had with its Calia athleisure line for women, the company said it saw a blank space in its stores to have a more upscale and lifestyle-driven line for men. The line won’t compete directly with the sweat-wicking performance gear sold by Under Armour and Nike. Instead, it’s more similar to Lululemon.

Dick’s amped up private-label investments come, though, as big-name brands like Nike and Under Armour have pledged to sell more merchandise directly to consumers. Adidas announced earlier this month its direct-to-consumer vertical should make up 50% of net sales by 2025. While Dick’s still carries these brands, the pivot has put more pressure on wholesale retailers to have exclusive lines, like Calia and VRST, to drive traffic and sales.

In 2020, Dick’s rang up $1.3 billion in sales from its in-house brands. Total revenue was $9.58 billion. The company said its own brands outperformed national labels in the golf, fitness, outdoor equipment and team sports categories. Calia was the second-best women’s apparel brand falling only behind Nike last year, it said.

Filling the ‘white space’

VRST will be the second brand that Dick’s has launched with its own website. Calia was the first.

“When you see VRST, it will be a very different product assortment from when we have with our core vendor partners right now, and it is a white space,” Dick’s Chief Executive Lauren Hobart said earlier this month during an earnings call. “It covers a broad range of activities.”

“VRST will put us in a much stronger position to compete with similar offerings from premium apparel brands and specialty athletic apparel stores,” Hobart explained.

Items in the VRST line, which include everything from joggers, shorts, tees, quarter-zips, and hooded sweatshirts, retail anywhere from $30 to $120, putting it on the higher end of the market when it comes to price point.

Source: Dick’s Sporting Goods

Companies like Lululemon, Nike, Adidas and Under Armour have seen more momentum over the past 12 months than clothing brands focused on work wear and dressier items. And in turn, more traditional apparel brands and department store chains quickly shifted their merchandise and marketing to center around casual and comfort, creating more clamor in an already noisy category.

Activewear grabs market share

Prior to the pandemic, for example, Lululemon said it planned to double its men’s business in five years. Direct-to-consumer men’s athleisure brands like Rhone, Ten Thousand and Vuori have also been doubling down on marketing spending online to reach new customers. Even department store retailers Nordstrom and Kohl’s have put a renewed focus on activewear, in a bid to boost sales. Kohl’s efforts include an in-house line called FLX, which debuted earlier this month.

At the same time, there’s been enormous growth in the space.

Last year, men’s activewear gained market share to account for 45% of the total men’s apparel market, compared with 39% in 2019, according to data compiled by the consumer research firm NPD Group. Categories that helped drive dollars in the space included sweatpants, which were up 16% year over year, and sweatshirts, which rose 3%, it said.

But VRST isn’t a hurry-up solution to take advantage of a pandemic pop. It has been in the works for a few years, the company said.

“And obviously we’re maximizing the current momentum,” Nina Barjesteh, senior vice president of product development, said in an interview. “But more than anything, we continue to look at the long run, and make sure that we’re building products that you want to come back for more.”

Dick’s shares are up more than 190% over the past 12 months, as of market close on Monday. The company has a market cap of $7 billion.

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