Bed Bath & Beyond (NASDAQ: BBBY) stock fell nearly 20% in yesterday's session and is down 45% in after-hours trading. The loss of support from activist investor Ryan Cohen has caused shareholders to flee as outrage erupts among retail investors.
Activist Investor Pulls Out
Cohen's firm RC Ventures has been a holder of BBBY stock since mid-January and helped steer a rally in a repeat of previous meme stock rallies.
Unsure what a meme stock is? read our What is a Meme Stock? article.
Between mid-January and early March, RC Ventures spent $121.2m acquiring 7.78 million shares and options to buy a further 1.67 million shares. But Ryan Cohen's company sold them this week for a combined $189.3m.
A Form 4 filing was submitted on August 16, listing 9.45 million shares that may be sold through JPMorgan Securities LLC, starting that day.
Shares of BBBY stock were soaring just a day earlier after RC Ventures filed a 13D/A (amendment 2), before the market opened on August 16, in which it reported holdings of 9.45 million shares, representing 11.8% of shares outstanding as of May 28, 2022, providing shareholder reassurance.
But in the meantime, Cohen had begun to sell. A third amendment to the 13D/A show these share sales took place on August 16 and 17 while retail investors were busy buying in.
On Thursday, Bed Bath & Beyond holder RC Ventures filed form 144 with a notice of proposed share sale of 9.45 million shares.
Bed Bath & Beyond Hires Bankruptcy Specialist
It came to light yesterday that Bed Bath and Beyond has hired the law firm, Kirkland & Ellis, to help it address a debt pile that's become unmanageable during a sales slump. Kirkland is renowned for managing restructuring and bankruptcy situations, ringing alarm bells in shareholder's ears.
What Is Bed Bath & Beyond?
Bed Bath & Beyond Inc (NASDAQ: BBBY) operates a nationwide chain of retail stores. Through its retail stores, the company sells a wide assortment of merchandise, including domestic merchandise and home furnishings, food, giftware, health and beauty care items, and infant and toddler merchandise. It is incorporated in the state of New York.
For financial reporting, Bed Bath & Beyond's fiscal year ends on February 28.
The company operates websites at bedbathandbeyond.com, bedbathandbeyond.ca, buybuybaby.com, buybuybaby.ca, harmondiscount.com, facevalues.com, and decorist.com.
As of May 28, 2022, the company had a total of 955 stores, including 769 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 135 buy buy BABY stores and 51 stores under the names Harmon, Harmon Face Values or Face Values.
During the Fiscal 2022 first quarter, the company opened five buybuy BABY stores.
Additionally, during the fiscal 2022 Q1, the company closed three stores, including 2 Bed Bath & Beyond stores and 1 Harmon store. The joint venture to which the company is a partner operates 12 stores in Mexico under the name Bed Bath & Beyond.
It is divesting online retailer Personalizationmall.com (which was supposed to be completed in March but has been postponed) and has recently sold the One Kings Lane business.
BBBY Q1 Financial Results
Bed Bath & Beyond (BBBY) reported its Q1, 2022 earnings for the quarter ended May 28, 2022, on June 29.
Q1 Financial Highlights
Net Sales: $1,463m (-25% decline)
Comparable Sales: -23%
GAAP Gross Margin: 23.9%
Adjusted Gross Margin: 23.8% (including 840bps Impact from Transient Costs Related to Inventory Markdown Reserves and Port-Related Supply Chain Fees)
Q1 Adjusted Gross Margin: 32.2% (Excluding the Two Impacts mentioned above)
Announcing Aggressive Actions on Inventory, Cost and Capex
For the next fiscal quarter (Q2) ending August 2022, EPS consensus is -$1.59, and sales consensus is $1.52bn.
How Does Bed Bath & Beyond Make Money?
Bed Bath & Beyond makes money selling inventory from categories such as Home, Baby, Beauty and Wellness markets. Additionally, the company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond.
The company launched a digital marketplace back in November last year. This allows third-party sellers to integrate into the Bed Bath & Beyond digital platform.
BBBY Stock Financials
Over the past year, Bed Bath & Beyond Inc (BBBY) has traded between $4.38 and $30.14. Since the after-hours drop, it sits at around $10.27.
Year-to-date, the Bed Bath & Beyond Inc (BBBY) stock is up by 22.36%, while the S&P 500 is down -10.69% over the same period.
FactSet analysts have a consensus Underweight rating on BBBY stock with a target share price of $3.70.
BBBY stock has a price-to-sales-value (P/S) of 0.2, below the industry benchmark. Bed Bath & Beyond (BBBY) does not offer a shareholder dividend.
BBBY Stock Risks
There's no doubt that Bed Bath & Beyond's business model is weak, which is one of the reasons shareholders were glad of Ryan Cohen's presence in the first place to shake things up.
The company has reported massive operating losses and needs to look at restructuring.
Inflation is causing input costs to soar, and retailers are not immune. The cost of fuel to deliver products and pressure to hike wages are two of the rising costs BBBY is facing.
The company is in dire need of modernizing, and that takes large pots of cash.
Meanwhile, consumer belt-tightening could lead to slowing product demand and a need to sell via promotions. Bed Bath & Beyond reported massive inventory levels with low sales volume, which signals a need to sell off stock and attract buyers.
During its Q1 earnings call on June 29, Sue E. Gove, Interim CEO of Bed Bath & Beyond, said:
We’re going to be focusing on balancing our assortment, lowering our inventories, managing our costs, strengthening our balance sheet. Our vendor relationships are going to be critical and we think that we’ve got those relationships in place. And most importantly, we’re going to be focusing on the customer and getting them back into our stores and offering them the products that they want to see.
This is all very well to say, but to do it in practice requires a lot of cash.
Should You Invest in Bed Bath & Beyond?
While some BBBY stock investors have done very well – one university student just pocketed $110m – many have lost a fortune. The meme stock rise and fall of BBBY should warn all retail investors to look closely at the company fundamentals and avoid falling for the hype.
Nevertheless, Bed Bath and Beyond is still a functioning business with clientele and products to sell, so is it worth buying the dip while it's battered and bruised?
The retail space is cut-throat and competitive. Consumers can easily find Bed Bath & Beyond products elsewhere and need not show loyalty to an outdated brand that has lost shareholder and consumer trust along the way. Even the BBBY website looks clunky and dated.
The stock will likely remain volatile until more is known about the direction Kirkland & Ellis plans to take. In helping it address its considerable debt pile, the firm may look to raise new funds, refinance existing debt, or consider bankruptcy proceedings.
Bed Bath & Beyond's bonds and loans are already trading at distressed levels. BBBY stock currently trades more than 130% above its 52-week low, so it could easily see further decline. And with no dividend or clear path to growth ahead, there don't seem to be any compelling reasons to become a shareholder at this time.
