Shares of brick-and-mortar retailer Bed Bath & Beyond plummeted on April 13 after the firm reported an unexpected loss and acknowledged more vulnerabilities in its business than it had previously accounted for—extending a week-long decline spurred by waning investor sentiment and pessimism over the firm’s ability to turn around its ailing business.
Down an eighth-straight day, Bed Bath & Beyond stock plummeted as much as 12% after the company reported a loss of $159 million in the fourth quarter, or 92 cents per share, compared to expected earnings of 13 cents per share; sales of about $2.1 billion, down 22% year over year, also fell short of analyst expectations.
CEO Mark Tritton said out-of-stock merchandise caused the company to miss out on about $175 million in fiscal fourth-quarter sales. That’s higher than the prior quarter, when supply chain bottlenecks cost the company about $100 million. Though the firm expects sales will improve in the second half of the year, it didn’t provide specific sales guidance for the period.
“Bed Bath & Beyond’s [earnings] disaster represents the latest question mark around the consumer,” analyst Adam Crisafulli of Vital Knowledge Media wrote in an email, pointing out the results follow a similarly disappointing report from Carmax, which blamed the same macroeconomic factors for its worse-than-expected earnings.
On April 12, Bank of America analyst Jason Haas warned “reality is about to hit hard for starry-eyed Bed Bath & Beyond shareholders,” giving the stock an underperform rating and issuing a price target of $9.50, representing more than 50% downside.
The company’s turnaround strategy, which included store closures and launching new private-label brands, “has not worked,” Haas said. He said management “moved too quickly” and drove away consumers—forcing the chain to double down on sharp promotions to recuperate sales, including 20% off entire orders, free same-day shipping and $10 gift cards for $50 spent.
“Bed Bath & Beyond stock has disconnected from its fair value following the involvement of Chewy co-founder, Ryan Cohen, who has developed a retail investor cult-following given his position in GameStop,” Haas said. Though retail investors are “looking for a short squeeze” following the sale of the company’s private baby-focused brand BuyBuyBaby, Bank of America values the brand at just over $500 million—far less than the “several billion” Cohen has stated.
Bed Bath & Beyond’s disappointing earnings results come about a month after Cohen sent the firm a letter in which he disclosed a 9.8% stake (becoming one of Bed Bath & Beyond’s top five shareholders), blasted management for “disappointing shareholder returns and perpetual underperformance” over the past ten years and laid out suggestions to help spur stock growth. Late in March, Cohen tapped three corporate restructuring veterans to join Bed Bath & Beyond’s board. Shares of the retailer—a highly shorted stock caught up in last year’s retail-fueled meme-stock mania—skyrocketed as much as 110% after Cohen’s letter was disclosed but have since plummeted about 62%.
CEO Optimistic About the Future
On an earnings call, Tritton emphasized the retailer’s growth opportunities. He said the company plans to open 20 to 25 new BuyBuy Baby stores and remodel 130 to 150 Bed Bath stores in 2022. With the additional remodels of its namesake banner stores, he said it will have remodeled over 200 locations — or roughly a quarter of its Bed Bath stores — by the end of the fiscal year. He also pointed to new initiatives, including a deal with Kroger to sell products on its website and to open shops inside its grocery stores.
And he said it wants to tap into an expected wedding boom this year by encouraging couples to register at its stores. He said the company is “seeing an uptick” in wedding and baby registry sign-ups.
Along with executing on its turnaround efforts, Bed Bath must compete for shoppers’ dollars, as inflation is at an approximately four-decade high. Consumers are also weighing other spending priorities, such as summer vacations and spring wardrobes, which may direct their attention elsewhere.