Shares were down more than 20% at one point in after-hours trading, ending the extended session off 9.7% as the retailer missed estimates on both top and bottom lines and withdrew its guidance. New CEO Mark Tritton is attempting to turn around the business after dismissing much of the executive team in December.
Comparable sales in the quarter fell 8.3%, but much of that was due to the shift in the Thanksgiving holiday, costing the company valuable shopping days during the Black Friday weekend, as its third quarter ended on November 30. Adjusting for that shift, comparable sales in the quarter fell 3.6%, and during the five-day period between Thanksgiving and Cyber Monday comparable sales jumped 7.1%, a positive sign -- though that was partly due to the company keeping all of its stores open on Thanksgiving.
On the bottom line, Bed Bath & Beyond reported an adjusted loss of $0.38 per share, much worse than expectations of a $0.02 profit. Selling, general, and administrative costs are taking up a greater percentage of revenue as sales fall.
A new era
Bed Bath and Beyond shares have surged since Tritton was named the new CEO in October. Tritton comes from Target, where he served as Chief Merchandise Officer, helping to drive that retailer's turnaround over the last few years by doing things like introducing more owned brands.
Since Bed Bath and Beyond exemplifies some of the same problems that Target did a few years ago and caters to a similar customer base, as data from Placer.ai shows, and the two retailers' customers have nearly identical income distributions, investors are hopeful that Tritton can effect a similar turnaround here.
The new chief was optimistic about the company's potential, but also made points that underscore how far behind other retailers it is. Calling Bed Bath & Beyond a "highly recognized and beloved brand," Tritton noted that the retailer is still #1 in brand awareness in the home goods category, and that 79% of customers have a favorable impression of the brand -- showing that despite the business's troubles, it still has a reliable customer base.
Tritton also said that one of his first initiatives would be to evolve the company's "reserve online, pick-up in-store" program into a "buy online, pick-up in-store" program, something most of its competitors have already done. Both Walmart and Target have outperformed other brick-and-mortar retailers, in part because of their efforts to make online pickup easy, a crucial component of running an omnichannel business in 2020.
Tritton also said the company is reviewing things like the speed and accuracy of its website, and is aiming to become a "true omnichannel retailer" with a digital-first strategy.
In other words, there seems to be plenty of low-hanging fruit for Tritton to pick as he aims to drive the retailer's comeback.
What's next for Bed Bath and Beyond?
Tritton said he would provide more details for the company's turnaround strategy at an investor event this spring. The next step for now seems to be replacing his executive team, as the company is still looking to fill the positions that were vacated in December.
Given the stock's recent surge, high expectations are already baked into Tritton's arrival, but the market is likely to react favorably to any other strategic changes he makes, as shares jumped when he cleaned house in the C-suite in December.
The stock is trading at a P/E of 13 after the latest earnings report, which is similar to other middling retailers, so Tritton will have to deliver measurable earnings growth in order to lift the stock over the long term.
Keep your eye on comparable sales, which have fallen for 11 straight quarters, as that will be the best way to measure progress in Bed Bath & Beyond's turnaround. If Tritton can execute on the initiatives outlined on the earnings call, comparable sales should turn positive within the next year. Such a move would surely elicit cheers from investors.