Struggling home-goods retailer and meme-stock phenomenon Bed Bath & Beyond reported its fiscal second-quarter results on Thursday, with the company touting its turnaround plan. But analysts warn there are plenty of challenges ahead.
Bed Bath & Beyond Inc. BBBY, +3.23% ended Thursday’s session down 4.2%, outpacing the S&P 500 Index’s SPX, +0.75% decline of 2.1%.
“BBBY fundamentals remain challenged, with 2Q comps and EPS solidly negative,” wrote KeyBanc Capital Markets analyst Bradley Thomas in a note released on Thursday.
Bed Bath & Beyond’s sales were down 28% on the prior year’s quarter, and the company also reported losses that were much higher than expected. The retailer’s results significantly underperformed compared with Census Bureau data for sales at furniture and home-furnishings stores, which declined 0.2% year over year in the June-to-August period, according to KeyBanc.
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“The Company continues to execute inventory mix changes by exiting nearly a third of the legacy-owned brands while increasing popular national brands to drive traffic and growth,” wrote Thomas. “We remain cautious about fundamentals at BBBY, and maintain our Underweight rating and our $2 price target.”
Raymond James also reaffirmed its underperform rating for Bed Bath & Beyond, with analyst Bobby Griffin highlighting the company’s ongoing cash burn and noting that its need to preserve cash and liquidity is limiting in-store investments. This, he said, will likely further deter customer traffic and hurt brand perception among younger customers.
“While Bed Bath & Beyond’s improved liquidity position (~$0.85B of available) gives new management some additional time, it likely only ‘kicks the can down the road’ as underlying business trends remain very challenging (no signs of improved comp sales & sizable quarterly cash burn),” he wrote in the note released Friday. “Even with a move back towards more branded products, we struggle to see a pathway for improved performance, especially with discretionary consumer spending and housing slowing further in 2H22/2023.”
Bed Bath & Beyond gave an improved inventory outlook this week and projected break-even operating cash flow by the end of fiscal 2022.
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In a note released on Thursday, Wells Fargo analyst Zachary Fadem described Bed Bath & Beyond’s results as “indefensible,” pointing to the company’s year-over-year sales decline and the $320.5 million in cash it burned through during the quarter. “Needless to say, the company has a lot of wood to chop to improve underlying trends (which are tracking ‘similar’ in early-Q3), flatten the [free-cash-flow] burn and fill the unfortunate void of its lost CFO,” he wrote.
Earlier this month the company’s chief financial officer, Gustavo Arnal, jumped to his death from a New York skyscraper, marking the latest chapter in a turbulent period for the troubled retailer.
In June, Mark Tritton was ousted as Bed Bath & Beyond’s CEO after less than three years in the role. Tritton’s attempts to breathe new life into the ailing company were hampered by supply-chain disruptions, labor shortages, inflation and the COVID-19 pandemic, Carol Spieckerman, president of retail advisory firm Spieckerman Retail, told MarketWatch at the time.
Wells Fargo’s Fadem also pointed to Bed Bath & Beyond’s steeper-than-expected gross-margin declines and the prospect of additional headwinds in the second half of the year as older inventory is cleared and replaced by national brands. This, he wrote, will likely exacerbate recent free-cash-flow pressures.
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“On a positive note, new initiatives (Welcome Rewards, new merchandise and simply saying ‘hello’ to customers) are seemingly resonating,” he wrote, but added that restructuring efforts are clearly warranted.
In a statement released on Thursday, Sue Gove, Bed Bath & Beyond’s interim CEO, said that the retailer is heading in the right direction. “Although still very early, we are seeing signs of continued progress as merchandising and inventory changes begin,” she wrote. “For example, we have seen positive sales trends where in-stock positions and visual merchandising have improved.”
Bed Bath & Beyond is also considering liability-management transactions, with particular focus on 2024 bonds, the company said.
Of 17 analysts surveyed by FactSet, five have a hold rating for Bed Bath & Beyond, while 12 have an underweight or sell rating.