Bed Bath & Beyond, Pier 1 Need to Update Approaches

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Bed Bath And Beyond Releases Q4 Earnings Figures
Kevork Djansezian/Getty Images
This should be a great time for retailers selling home decor, furnishings and other housewares, but it's just not happening.

Bed Bath & Beyond (BBBY) reported uninspiring quarterly results on Wednesday, and Pier 1 Imports (PIR) didn't hold up a whole lot better a day later. We may be years into a housing boom that initially benefited these home-centric retailers, but challenges appear on the horizon.

Bed Bath & Beyond and Pier 1 faulted lousy winter weather for a slowdown during the holiday season, but there's more to the potentially problematic trend than just snowstorms here and there.

The Softer Side of Home Furnishings

Shares of Bed Bath & Beyond opened 6 percent lower on Thursday morning after issuing a troublesome quarterly report the night before.

It wasn't the slight dip in sales and earnings. The market was expecting that. After all, its fiscal fourth quarter ending on March 1 included one fewer week than the prior year's fiscal period. Comparable store sales (a metric that's more telling since it compares what the average store sold in similar 13 week cycles) increased 1.7 percent -- that's not too shabby in light of the rough weather that many retailers were complaining about.

But the stock still took a hit after the superstore chain offered up weak guidance. Bed Bath & Beyond sees sales and earnings clocking in below Wall Street targets for the current quarter.

Pier 1 had an even sloppier holiday quarter. It too saw sales and profitability decline with one less week in the fiscal period, but its comparable store sales plunged 4.6 percent during the period. Pier 1 blames the lousy weather and a holiday calendar shift a year earlier for the shortfall.

Pier Pressure

Pier 1 Imports is also updating its three-year growth plan. As a result of "the challenging fourth quarter," the retailer now sees it hitting its goal of achieving $225 in sales per retail square foot in fiscal 2016 instead of fiscal 2015. It also sees operating margins sliding to between 11 percent and 11.5 percent over its original goal of clocking in at 12 percent.

This may not seem like an outlandish tweak, but why should the timing of the holiday shopping season or a few brutal storms have any bearing on how sales and operating margins will play out in two years? You've been busted, Pier 1.

Hard Times for Bricks and Mortar

The housing recovery was great for these retailers. Folks were buying new homes, which often call for the personal touch of new shower curtains, linen sets and outdoor armchairs. As home prices increased, more homeowners were no longer underwater on their mortgages, freeing them to invest in their properties.

However, against this backdrop we're starting to see mortgage rates inch higher and home sales start to slow. We also can't dismiss the Internet. Bed Bath & Beyond and Pier 1 have active online storefronts, but they can't compete with Amazon.com (AMZN) and its cost advantage of not having to outfit hundreds of staffed showrooms across the country the way that Bed Bath & Beyond and Pier 1 do.

Some will argue that if your dog ruins your area rug or you run out of K-cups for your coffee maker that you'll need immediate replacements. But there are plenty of renters and homeowners who are fine waiting a couple of days for a cheaper solution. Pier 1 sees online sales accounting a tenth of its business in a couple of years, but that's not enough.

Both Bed Bath & Beyond and Pier 1 expect to grow their sales this new fiscal year, and that's encouraging. However, with the operating climate and trends working against them improvement in 2014 and beyond is no sure thing.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Bed Bath & Beyond. The Motley Fool owns shares of Amazon.com. Try any of our newsletter services free for 30 days. ​

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8 Comments

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bagthepi

I agree that BBNB needs desperately to change their inventory. The best part of BBNB are the stores that have their own in=house beauty and health products department. To their credit, it is always well stocked with a wide variety of offerings. Much easier than looking for all those things at Target etc. But when it comes to bedding and the like, it's boring and overpriced.

April 11 2014 at 12:32 AM Report abuse rate up rate down Reply
Michael & Linda

Bed Bath and Beyond is still very good for smaller kitchen accessories and kitchen storage bins/etc.. I always wait until I have a coupon for 15 or 20 percent off. The beddding dept. is overpriced. You can still find some good deals on their clearance mark-downs. Same with Pier 1... shop the clearance mark-downs in the stores. Pier 1 does have unusual decorator items, but they are expensive. I always head for the clearance racks in every store. Kirklands usually has some great deals on their clearance racks.

April 10 2014 at 11:42 PM Report abuse rate up rate down Reply
phpoling

Very, very overpriced stores espcially Bed Bath & Beyond store.

April 10 2014 at 11:41 PM Report abuse rate up rate down Reply
bootsnchaps60

Last time I was in Pier 1 it was stuck in the 60's and '70s. Also very expensive. BBB is also very pricey. I rarely shop there because of the effusive air freshener scent that clings to my clothes.

April 10 2014 at 11:25 PM Report abuse rate up rate down Reply
worried man

They both sell junk !

April 10 2014 at 10:21 PM Report abuse rate up rate down Reply
auntlesliew

BBB - it's the same stuff season after season. Christmas stuff? Same as last year and the year before. Summer stuff? Same deal. Want a new and exciting table cloth for Easter? It's the same stuff we had last year - dig through it though because you might find a table cloth with last year's prices. Want to see new Christmas dishes? Yep, Lennox - same as last year. The stores never change their floor plan so a customer knows exactly where to go to find something. The store isn't fresh. Go to your right - kitchen stuff - go to your left, towels and bedding. If you know where you're going, no reason to look around. Prices are not cheap but they do offer the coupon. The computer at the store is ridiculous - want to look up say a particular duvet? Well, you get every item in the store and on line made by that manufacturer and then you have to dig through all the clutter to try and find what you're actually looking for. The technology is antiquated: not at all store friendly. Pay is poor. Stores are generally understaffed - 1 person in front, 1 person in soft lines, 1 person in hard lines and a manager. And if a bridal couple comes in, store is screwed because policy is someone has to walk that poor couple through the entire store to make sure the couple doesn't miss anything on their list. So, now you have 1 person up front, 1 manager who is now sales person, 1 floor person on the floor and a bridal consultant. Managers must be under the gun from upper mgmt because this should be a fun place to work, but rarely do I find smiling staff. Supposed to be off at 10? Oh, probably not - there are still things to put away so you stay until it's done. This was a business that would be perfect for Undercover Boss to do a segment on - but not the big volume stores where they have "earned" extra floor help. Go to the ones that haven't "earned" that extra person. Try and work that store when someone calls in (always happens on a Saturday night) sick, and there are only 3 people working the store and a bridal couple comes in and the store gets busy. So, now, there are only 2 people - Manager as the sales person and the customer svc person. Fun times.

April 10 2014 at 9:52 PM Report abuse +1 rate up rate down Reply
thismustbeme

Bed Bath & Beyond is so far behind the times, technologically. They offer email coupons and texting coupons, yet when a customer wants to get a coupon on their phone, the store has a lousy connection. Sure they offer the customer the chance to return with a coupon and their receipt, but many want satisfaction NOW! Their computer systems are so outdated that an item is difficult to look up for a customer, because if it is not identified properly, the computer can't find it. The registers are so old that many breakdown during transactions and the screens are impossible to see. In addition, many of the stores have shelves and display areas that are crumbling. The only plus for BBB is that there really isn't any competition for them. That's probably why they just let their business grow old. They also are very low on the pay scale!

April 10 2014 at 9:21 PM Report abuse rate up rate down Reply
1 reply to thismustbeme's comment
Linda

I agree BBB has gone so old and stale I only shop there for a few items due to that issue. I find the place boring and not up to date on anything. It is sad how the owners let BBB go down hill. Now what is wrong with Pier One? I have always like that store for some odd reason.

April 10 2014 at 9:55 PM Report abuse +2 rate up rate down Reply