Bed Bath & Beyond (NASDAQ:BBBY) has a fight on its hands. The specialty retailer is facing an attack from activist investors who want to toss out the management team and shift its retailing and capital allocation strategies.
Against that tricky backdrop, the company reported fourth-quarter earnings results that failed to change the sour operating picture that investors have seen for several years. Fiscal 2018 brought reduced sales and lower profitability, consistent with negative trends from 2017 and 2016.
But perhaps because of that shareholder challenge, CEO Steven Temares and his executive team laid out in detail why they remain optimistic about their rebound strategy. These comments came from a conference call with Wall Street analysts, and below are a few highlights from that discussion.
On the right track
Today, we can report that not only have we met the goals that we set for 2018, but ... we are now planning earnings per share in fiscal 2019 to be slightly ahead of 2018 with acceleration thereafter. -- Temares
The headline results from fiscal 2018 weren't strong. In fact, comparable sales fell by about 1% for the third consecutive year, and operating margin worsened again, dipping into negative territory from 6% in 2018.
Yet Bed Bath & Beyond had warned investors a year ago that its turnaround would be a tough, multi-year process. Executives were happy to note that they're actually outperforming that initial reading thanks to the cumulative effect of all their profit-boosting initiatives.
Reinventing the stores
We've completed a full product portfolio review and developed a product strategy to further align across product assortment, customer experience, and customer engagement. -- Temares
Executives detailed a few of the major changes they made to the business over the last year that they say position it for a return to profitable sales growth. The biggest has been a new merchandise assortment tilted toward higher-margin products that will sell at faster velocities. While the changes didn't lift overall sales this year, they did allow Bed Bath & Beyond to reduce its reliance on price cuts even as management cut inventory levels.
Management is also excited about store redesign plans that they're crafting through tests at a small subset of stores. This group managed 4% higher transactions over the last month, Temares said, and achieved higher profitability. Bed Bath & Beyond is hoping to roll out the best wins from these stores to the national footprint over the coming months.
Staying on board
While our strategy and operational execution are each of major components of our future success, the right Board and governance structure provide effective oversight and help ensure that we achieve our objectives. -- Temares
Management predicted flat sales in 2019 and a slight rebound in profitability, with both these key figures forecast to begin improving significantly in 2020 and beyond. Executives are well aware that these initiatives might not have sufficient time to play out, though, if activist investors have their way. They're aiming to take control of the board of directors and replace the CEO at Bed Bath & Beyond's upcoming shareholder meeting.
Temares and his team are making some preemptive moves ahead of that vote that could address a few of its shareholders' biggest concerns. The current board is reviewing the company's governance structure and management compensation practices, for example.
Ultimately, executives have to hope investors give them enough time to engineer a rebound. To their credit, they've been clear on the challenges inherent in such a large-scale effort, but shareholder patience is clearly wearing thin as the retailer approaches its fourth consecutive year of disappointing results.