Why Bed Bath & Beyond Stock Soared 33% in January

The retailer survived a tough holiday season and sees a clearer path toward improving profits by 2020.

Demitrios Kalogeropoulos
Demitrios Kalogeropoulos
Feb 5, 2019 at 9:36AM
Consumer Goods

What happened

Shares of specialty retailer Bed Bath & Beyond (NASDAQ:BBBY) trounced the market last month by gaining 33% versus an 8% spike in the S&P 500, according to data provided by S&P Global Market Intelligence.

The rally removed just a portion of the significant losses that shareholders have seen with this investment lately, with the stock still down over 30% in the past year. 

Two women share a secret while shopping.

Image source: Getty Images.

So what

January's spike came following a fourth-quarter report that significantly outpaced investors' expectations. Yes, sales fell at its retailing shops across the country during the key holiday shopping period, and profitability declined due to intense price-based competition. But Bed Bath & Beyond scaled back its promotional activity, which put it in a better financial position. The chain exited 2018 with a solid cash balance and slim inventory levels, suggesting management has time to work on engineering a growth rebound.

Check out the latest Bed Bath & Beyond earnings call transcript.

Now what

CEO Steven Temares and his team are getting more confident about their recovery, at least when it comes to earnings. Profits are now expected to hold stable in 2019 rather than decline, before ideally marching higher again beginning in 2020. Bed Bath & Beyond has to achieve a lot over that time, though, including building competencies in its online business and trimming its physical store portfolio. The biggest metric to watch will be customer traffic, as a rebound there will be essential if the retailer is going to find a sustainable path forward.