American retailers face increasing supply chain challenges and inflation, which has caused their share prices to drop on Wall Street.

I am bearish on Bed Bath & Beyond (NASDAQ:). (See Bed Bath & Beyond stock charts on TipRanks)

Compress Margins: Slower traffic

Bed Bath & Beyond reported financial results on Thursday for the second quarter of fiscal 2021.

Analyst expectations were not met by net sales of $1.99 Billion. Sales of comparable products fell 1% due to lower traffic and increased inflation. Margins were compressed by high freight costs.

Mark Tritton, Bed Bath & Beyond President and CEO, tried to stay upbeat for the future.

He stated that while our quarter’s results were disappointing, we are still confident in our multiyear transformation. He did point out the difficult environment that retailers have been facing in recent months.

We experienced solid growth in June and then we were hit by unexpected external forces at the quarter’s end that had a negative impact on our results. Traffic slowed down significantly in August, our final fiscal month, and sales didn’t materialize as expected.

Supply chain problems, which further reduce margins and slow traffic, compounded the problem.

Tritton said, “Additionally, unimaginable supply chain problems have been affecting the industry pervasively and we saw steeper price inflation escalating month by month, particularly later in the quarter beyond the significant increases we had previously anticipated.” This surpassed our expectations. These forces had an impact on sales and gross margin.

Supply chain problems aren’t just a problem for retailers. Homebuilders and express mail carriers shared similar concerns last week. This suggests that the problem may be spreading to other industries.

Wall Street Take

Wall Street didn’t like what it saw in Bed Bath & Beyond’s report, sending its shares sharply lower in Thursday’s regular trading session.

Kohl’s shares (NYSE) and Macy’s shares (NYSE), Target Investors ran for cover at (NYSE:) 

TipRanks has assigned a Smart score of 2 to BBBY due to poor technicals, lower hedge fund activity and higher insider selling.

Forecast

Bed Bath & Beyond’s problems could be more the result of competition from online sales, and less to industry woes.

However, 11 Wall Street analysts who follow the company forecast a price target of $19.78 with a high forecast at $28, and a low of $14. The average Bed Bath & Beyond price target represents 17.7% upside potential.

These analysts will only be confirmed over time.

Disclosure: Target shares were owned by Panos Mourdoukoutas at the time this article was published.

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