Bed Bath & Beyond (BBBY) reported another dismal quarter. There was everything to dislike about the latest results -- a 9.0% year-over-year fall in revenue and bottom line losses for the quarter. Adjusted comparable sales declined 3.6% year over year, while the company's long-term debt remained stubbornly high at $1.49 billion, despite the $250 million cash infusion from a recent real-estate sale and leaseback transaction.
The company's share price has also tumbled from a high of $73 per share back in Jan. 2015 to around $15 as of this writing. However, the question is: Are investors throwing out the baby along with the bathwater? Could there be latent value in Bed Bath & Beyond's brand and reputation?
Recognizing the need to stem the bleeding, the company appointed a new CEO, Mark Tritton, last November to realign the business and restart its growth engine. Tritton comes with strong credentials. As former Chief Merchandising Officer at Target, he was instrumental in helping the retailer regain its footing with a focus on private-label offerings. But the task at hand seems daunting as Bed Bath & Beyond faces a severe crisis. Tritton himself admitted that the company has a persistent lack of purpose and has not been able to connect with younger consumers in its various product categories.
With such a challenge ahead, can Bed Bath & Beyond pull off a turnaround?
Tritton has wasted no time articulating his "go-forward" strategy for improving performance at the company. It revolves around five pillars: product, price, promise, place, and people.
For product, the aim is to refine the company's massive catalogue and inventory list, focusing on what people actually desire. Many organizations need such curation in order to figure out what's important, rather than letting inventory just pile up. This may mean more near-term headaches in the coming months, though, with almost $200 million of inventory writedowns recorded in the fiscal second quarter and another $350 million worth of inventory removed from stores before the holiday season.
As for price, the company needs to define what constitutes value at a given price point and make it compelling for the customer. Poor pricing decisions commonly result in lost sales and missed opportunities.
Management's promise comes in the form of deepening relationships with customers in order to strengthen loyalty and encourage repeat purchases. The company's Beyond Plus membership program now has 1.4 million members and growing this will be key to improving sales over time, though it comes at the cost of an unfavorable impact on gross margin.
To address place, the company will work on building up its digital capabilities in order to become an "omni-always" retailer. And in terms of people, Mark is currently searching for suitable candidates to take over key roles after shaking up five key management positions.
Turnarounds need patience and time
The five-pillar strategy sounds comprehensive as it covers many critical aspects of what's gone wrong with the company. However, investors need to know that for any turnaround strategy to work, time and patience are necessary. Management will have to execute its plans, collate the data, and tweak initiatives in case they're not working.
Tritton has also shared that more details of each pillar will be revealed at an upcoming investor day in Spring 2020. As he has just taken the reins in November, perhaps investors are expecting too much in too short a time. After all, proper turnarounds from such a weak position often take at least two to three years, if not more.
There are several bright spots, though, amid the raft of bad numbers. A recent brand-health tracker study still places Bed Bath & Beyond in the No. 1 position in terms of brand awareness for the housewares and home goods category. An impressive 79% of customers continue to have a favorable impression of the brand, suggesting strong potential for sales growth if the company manages to connect with this group.
And though comparable-sales were down in the fiscal third quarter overall, they were up 7.1% year over year for the five-day period from Thanksgiving through Cyber Monday. In fact, both the physical and digital channels were up over 5% and 13%, respectively.
So a turnaround is possible as Bed Bath & Beyond's mindshare remains high, but the going will be tough in the coming quarters, and investors who hold faith in the new leadership should buckle up for a rough ride ahead.