By James Rogers
Bed Bath & Beyond reported a much wider-than-expected second quarter loss before the stock market opened on Thursday, but also gave an improved inventory outlook and projected breakeven operating cash flow by the end of fiscal 2022.
Shares of the home goods retailer and meme stock darling seesawed into negative trading territory and were down 5.7% by early afternoon. Bed Bath & Beyond Inc.’s /zigman2/quotes/209801102/composite BBBY +1.99% shares are down 58.2% this year, outpacing the S&P 500 Index’s /zigman2/quotes/210599714/realtime SPX +0.75% decline of 23.6%.
Bed Bath & Beyond stock skyrocketed earlier this year but was hit hard last month after activist investor and GameStop Corp. /zigman2/quotes/203755179/composite GME +11.37% Chairman Ryan Cohen disclosed he is selling a large stake in the company.
As part of a turnar o und plan, Bed Bath & Beyond gave a strategic update last month that included workforce cuts and store closures. At that time, the company also provided a financial update for its second quarter.
“While BBBY’s Q2 update was well-telegraphed, the results were indefensible,” wrote Wells Fargo analyst Zachary Fadem, in a note released on Thursday, pointing to the company’s sales, which declined 28% year-over-year, and cash burn of $320.5 million 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 FCF burn and fill the unfortunate void of its lost CFO.”
Earlier this month the company’s CFO Gustavo Arnal leapt to his death from a New York skyscraper, marking the latest chapter in a turbulent period for the troubled retailer and meme stock phenomenon.
In June Mark Tritton was ousted as Bed Bath & Beyond’s CEO after less than three years in the role. Triton’s attempts to breathe new life into the ailing company were hit 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.
“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.
With share losses growing, a likely $900 million of cash burn in fiscal year 2022, and an increasingly challenging home goods landscape, Wells Fargo reiterated its Bed Bath & Beyond underweight rating.
In a statement released on Thursday Bed Bath & Beyond Interim CEO Sue Gove 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.”
Gove also pointed to the company’s Welcome Rewards program, which has expanded its membership by more than 1.3 million since the end of August. The program, which was launched this summer, now has 6.4 million members. “Enrolled members represent more frequent purchases and higher transaction values across all three banners,” she wrote.
“Our buybuy BABY business continues to hold market share relative to other mass market retailers in today’s highly competitive environment,” Gove added. “We are enhancing our capabilities while leveraging Welcome Rewards, such as the relaunch of our Baby registry business later this fiscal year, increasing the effectiveness of marketing investments, and realizing the strategic shift of our merchandise assortment which had minimal impact in this quarter, all targeted to drive customers and top-line growth.”
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.