• by Sarah Mahoney  @mahoney_sarah, July 2, 2021

Retail observers have been keeping a close watch on turnaround efforts for Bed Bath & Beyond, and its latest results offer mixed signals.

The company has been investing heavily in new marketing initiatives and an ambitious private-label strategy -- and sales are going strong, beating expectations.

Revenue for the first quarter advanced 49% to $1.95 billion, from $1.3 billion in the same period a year ago. The retailer says core sales gained 73%, with comparable sales rising 86%. And digital sales gained 50%.

But while adjusted net income improved to $5 million, compared to a loss of $243 million in the year-ago period, analysts had expected better.

Increased spending in marketing for BB&B’s "Home, Happier" campaign and the initial launches of private-label brands impacted profits.

The Union, New Jersey-based company is calling the results evidence of a winning strategy. In its earnings report, Mark Tritton, president and CEO, called this "a year of historic and necessary change for this organization against the backdrop of unprecedented challenges due to COVID-19."

Pointing out that the company has notched its fourth consecutive quarter of comparable sales growth, he raised the financial forecast.

"We are reestablishing our authority in home, recapturing market share and unlocking our full potential," he says. "We continue to execute quarter after quarter, and we are pleased to be raising our full-year guidance outlook today."

Not everyone is convinced. "We look favorably on the company's transformation progress, but the jury is still out on whether the company will be able to stop market share losses," writes Seth Basham, who follows the company for Wedbush Securities. He points out that increased marketing spending and diminishing cost-cutting options led to the disappointment in earnings.

He remains neutral on the company, "without more evidence of improving market share performance."

Baird is also retaining its neutral stance. While encouraged by the retailer's rising sales, analyst Peter Benedict points out its competitors did better. At Target, for instance, sales of home products gained 40% in the most recent quarter.

"With back-to-college an important customer re-engagement opportunity, we remain watchful for signs of incremental traction in the months ahead," he writes in his note.

Yet while BB&B's ability to stem years of sales declines is good news, "we believe the company still has work to do in order to fully reestablish its market position with consumers."