Black Friday Couldn't Save Bed Bath & Beyond's Dreadful 3rd Quarter

Home goods retailer Bed Bath & Beyond (BBBY +0.00%) reported third-quarter results after Wednesday's closing bell. Sales fell 9% year over year, and the year-ago period's profits swung to a net loss. The results fell far short of Wall Street's expectations, and Bed Bath & Beyond's stock fell as much as 22% in after-hours trading.

Bed Bath & Beyond's third-quarter results by the numbers

Data source: Bed Bath & Beyond. GAAP = generally accepted accounting principles.

Calendar oddities

The company's third quarter ended on Nov. 30 last year and Dec. 1 in 2018. This calendar quirk pushed the meat of the post-Thanksgiving shopping week -- including Cyber Monday -- into the fourth quarter rather than the third.

This shift made a significant difference to Bed Bath & Beyond's results. As reported, comparable sales fell 8.3% in the third quarter. If you include the Cyber Monday week in the year-over-year comps calculation on both sides, the slide stopped at just 3.6%. Breaking that adjusted metric down a bit further, in-store sales fell 6.5% while online sales increased by 9.4%.

Zooming in on just the five-day period between Thanksgiving to Cyber Monday, comps rose 7.1% thanks to a 5% increase in physical locations and more than 13% higher digital sales. So Bed Bath & Beyond managed the prime post-Thanksgiving shopping period in style, but that wasn't enough to overcome slower sales in the retail chain's routine, non-holiday business.

The first step of fixing a problem is admitting that you have one

In the earnings call, Bed Bath & Beyond's management made it clear that it's working on improving the company's weak spots.

"Our business remains challenged with some self-inflicted issues, including poor inventory management, non-competitive pricing, and a lack of convenient shopping options, and we are working to address these issues," said CFO Robyn D'Elia. "We also engaged in new promotional activity during the holiday period, including special in-store and online sales events and the launch of our first-ever national Black Friday advertising campaign. Overall, these are positive steps, but we know we have a lot more work to do to stabilize our top line and margins."

CEO Mark Tritton expanded on this rueful theme.

"It's clear that we have some heavy lifting to do against the emerging plan and clear goals," Tritton said. He continued:

We're experiencing short-term pain, some of which has been self-inflicted. We are making bold and broad-based changes to modernize our business. We have a solid balance sheet. We will have a relentless focus on our customer. We will act as a true omnichannel retailer.

These steps will take time, and they won't always be easy. Bed Bath & Beyond is in need of a deep overhaul right now, and that's what Tritton hopes to achieve. He's been on the job only since October, brought in to repeat the turnaround effort he executed with great success at Target (TGT 0.66%). Tritton already implemented some dramatic changes, replacing six VP-level executives in December and going back to the ace card that saved Target -- private-label merchandise brands that can set the company apart from competitors while also improving the financial returns of each item sold.

It's a proven strategy, but also an expensive one. Bed Bath & Beyond didn't have a whole lot of experience or established infrastructure for private-label goods when Tritton came in, so it makes sense to see some pain triggered by the early going.

Image source: Getty Images.

The stock just got a lot cheaper. Isn't it a good buy now?

Fellow Fool Adam Levine-Weinberg wasn't convinced that Tritton would be able to fix what's ailing Bed Bath & Beyond three months ago, and this blunt third-quarter report isn't exactly inspiring me, either. It's not obvious to me that the private-label focus and ordinary cost-cutting measures will be able to heal the cracks in this traditional retailer's crumbling foundation.

Tritton calls it "short-term pain, some of which was self-inflicted." I call it an addiction to outdated business concepts, where the best defense might be to lean heavily on online sales, with or without a basket of new in-house brands. I'm often quick to point out buy-in opportunities when high-quality businesses have their share prices punched down for shortsighted or poorly supported reasons.

That's not the case here, and I'll gladly stay on the sidelines until Mark Tritton starts to prove me wrong.