Home goods retailer Bed Bath & Beyond (BBBY) should be on top of the world right now. However, the company has been hit by several turnarounds in recent months. The company’s newest earnings report saw BBBY open down ~12% in today’s trading session. However, the stock has fully recovered and is flat on the day.
I’m bearish on Bed Bath & Beyond. The current economic environment looks increasingly forbidding for all but the most effective retailers. Bed Bath & Beyond has increasingly demonstrated that it’s not the most effective of retailers, as illustrated by the holiday season’s sales.
Bed Bath & Beyond enjoyed a surprising spike in share prices back in late May/early June. However, this spike proved unsustainable, as the stock spent the summer and parts of fall in decline. Similarly, short-lived recoveries appeared in October 2021 and February 2022, but neither held sway for long.
The latest news only hits Bed Bath & Beyond harder. The company posted a loss of $0.92 per share. Analysts were expecting a profit of $0.03 per share. That’s a loss on two fronts; it not only posted a loss, but it did so as a gain was expected. Revenue was at least closer but still a loss. The company brought in $2.05 billion in revenue, but analysts expected $2.07 billion.
Wall Street’s Take
Turning to Wall Street, Bed Bath & Beyond has a Moderate Sell consensus rating. That’s based on one Buy, two Holds, and three Sells assigned in the past three months. The average Bed Bath & Beyond price target of $15.33 implies 14.6% downside potential.
Analyst price targets range from a low of $10 per share to a high of $26 per share.
A Mixed Picture on Several Fronts
Looking under the hood of trading dynamics for Bed Bath & Beyond presents a rather muddied picture. First, we have the word from the TipRanks 13-F Tracker, which shows hedge fund involvement. Hedge fund involvement went off a cliff back in September 2020, and it’s only managed to peel itself off the floor recently.
July 2021 featured a negligible 42,207 shares held by hedge funds. The last two quarters have seen recoveries, but these are incremental at best. The current hedge fund position of 550,349 shares is a disaster against March 2020, which featured over nine million shares held.
Meanwhile, insider trading features a lot of buying going on. While there was some selling going on in nearly every quarter, buying outpaced selling, and usually by a wide margin.
There were two periods in the last year that featured only selling transactions and one where selling outpaced buying. However, there were six periods where buying outpaced selling. There were also three periods where only buying occurred.
Sadly for income investors, Bed Bath & Beyond’s dividend history is another one that used to look great. Now, that’s no longer so. Bed Bath & Beyond used to have a steadily climbing dividend that was paid regularly, ideal for income investors. It suspended its dividend back in March 2020 and shows no signs of restarting it.
A Valiant, Potentially Fruitless Struggle
Bed Bath & Beyond had its troubles back when the pandemic started. Its shuttered stores left the business on the back foot as governments demanded closures to “stop the spread” of COVID-19, which never really worked.
Supply chain issues then kicked in and are kicking in to this very day. It’s tougher than ever for retailers to stock products because the product is often not there to stock. Having no products to sell makes it impossible to sell products.
Now, throw in an economy where inflation rules the day from the grocery store to the gas pump, and the picture looks a lot different for retail. Suddenly, shoppers have less to spend in general because they’re spending more on food and fuel. Bed Bath & Beyond not only has less to sell, but it also has fewer interested shoppers to sell to.
The answer here may be as simple as pivoting to pandemic marketing. If Bed Bath & Beyond can position itself as a staycation alternative, it may be able to get out in front of the declining airline trade or similar issues. Let’s face it; people are still worried about COVID-19.
A recent Morning Consult study found that 70% of respondents are comfortable with going on vacation. That’s down a bit but still much higher than this time last year.
Still, that means 30% of respondents weren’t comfortable. Meanwhile, 50% of respondents were comfortable flying domestically, and 37% were comfortable with international flights. Do the math, and that’s a lot of people sitting out.
Selling your line of products as a way to enhance your home life and make it a vacation-worthy getaway, meanwhile, is well within Bed Bath & Beyond’s power to do. While a lot of people did just that in the early days of the pandemic, blog posts outlining tips on how to do so were emerging as late as February 2022.
Bed Bath & Beyond, meanwhile, needs to demonstrate that value if it expects to get anywhere. With potential shoppers’ wallets reeling from new grocery store price hikes and shortages—not to mention growing prices for air travel—shoppers will clearly want relief.
Proper marketing can position Bed Bath & Beyond to be a leader in that relief effort. Don’t spend a fortune on air travel; spend a much smaller fortune on stuff that makes you feel like you’re on vacation instead.
Concluding Views
Bed Bath & Beyond will have its work cut out for it. Right now, shoppers are having a hard enough time getting food on the table and gas in the tank to think about scented candles and fluffier towels. However, there’s a path to victory here if the company can just make a few adjustments.
I remain bearish on Bed Bath & Beyond, however. Even with the best marketing ploys behind it, it may still come up short in getting customers through recently-reopened doors. At the end of the day, Bed Bath & Beyond wasn’t essential retail back in the pandemic days. It may not be essential retail during the recession days, either.
Discover new investment ideas with data you can trust.
Read full Disclaimer & Disclosure
