Bed Bath & Beyond Believes in Benefits of Buyback

If you really believe in the future of a business, come what may, a 19% drop in the stock's price is probably a good buying opportunity. Bed Bath & Beyond (NASDAQ: BBBY  ) apparently believes in itself, and it's taking advantage of a 19% drop over the last year to buy back $2 billion of its own shares. Chief Executive Officer Steven Temares said that the company "believe[s] this is an opportune time, and method, to return value to our shareholders."

Shares actually slumped 0.5% on the news by midday Monday, with investors apparently unimpressed by the company's commitment or by the long-term impact of the plan. Is that fair?

Bed Bath & Beyond buys back the bottom
For any company in Bed Bath & Beyond's current position, investors need to evaluate whether the buyback is a move to invest in the future growth of the business or just a chance to boost some fundamental ratios without really affecting the underlying problems. Bed Bath & Beyond has the underlying problem of not selling enough stuff, and selling the stuff that it does for less money than it should.

Comparable sales and gross profit fell in the company's last quarter, and it looks like consumers are less than thrilled with Bed Bath & Beyond's current direction. The buyback was announced Monday, but the company has until the middle of 2016 to carry out the program. That gives the business a chance to time its purchase and get more value if Bed Bath & Beyond falls further.

Fundamentally, the company is betting on a return to growth over the next few years. That, in turn, is predicated on its plan to do more of everything. Management has said that Bed Bath & Beyond is going to grow its store count, increase its online assortment, and add products in-store to attract more customers. Combined with work on its back-end systems, the company believes that it can turn things around and make its investment in itself worthwhile.

Fighting against the tide
Bed Bath & Beyond's optimism about its ability to do more with more seems to go against the current that has swept other big-box retailers out to sea. Temares' assertion that Bed Bath & Beyond "continue[s] to increase, differentiate, and leverage [its] assortment across all channels, concepts, and countries in which [it] operate[s]" doesn't seem to address the fundamental problem that customers just don't seem interested.

The $2 billion in stock repurchases has the baseline benefit of giving current investors more bang for their buck. The company only has a $12 billion market cap, so $2 billion will make a substantial impact on earnings dilution. That might be the only real good news from this purchase, though. It's not clear that Bed Bath & Beyond is on the way to anything better, and purchasing stagnant stock isn't going to change anything. With the variety of businesses doing genuinely interesting things and getting more out of their own repurchases, nothing about Bed Bath & Beyond's announcement inspires excess confidence.

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