Investors liked most of what they heard in Bed Bath & Beyond's (NASDAQ:BBBY) latest earnings report. While the retailer's fiscal fourth quarter didn't cover the start of social distancing efforts or the store closures that began in early April, it included some positive demand signs and even better news on the chain's financial position heading into the shutdown.
Let's take a closer look at the main takeaways management had for shareholders in the company's quarterly conference call.
Another tough quarter
The pressures of store traffic trends and heavy promotional activity coupled with inventory management issues around the holiday selling period hampered our efforts to stabilize the business in the fourth quarter. -- CEO Mark Tritton
Sales trends through early March were weak. Comparable-store sales dropped 6%, which marked a softer result than last quarter's 3.6% decline. Bed Bath & Beyond stumbled through several challenges, including price cuts by rivals through the holiday season. But the biggest headwind was its failure to keep the appropriate inventory in popular categories such as kitchen electronics. "We just didn't have enough of the right stuff," Tritton explained.
Transitioning to e-commerce
If there is a silver lining, I would say that given the monumental changes we've made to our business over the past four weeks, our ability to act decisively, partner up and move with speed and agility has been greatly enhanced. -- Tritton
Bed Bath & Beyond has found success in quickly transitioning its business to a digital-only selling model since closing its stores on April 2. Many of those locations have become makeshift fulfillment centers, and the entire enterprise has reorganized around e-commerce.
Digital sales jumped 90% through the first two weeks in April, and executives highlighted standout sales categories including bread machines, coffee makers, and vacuum cleaners. A curbside pickup offering is available at most of its buybuy BABY stores, and management expects to add the functionality to the Bed Bath & Beyond locations as soon as they reopen for regular business.
Our strong cash position, along with our near-term actions, provide the company with continued financial resilience and ample short and mid-term liquidity to fund the operations of the business. -- CFO Robyn D'Elia
Bed Bath & Beyond rearranged all of its spending priorities in response to its new dramatically curtailed selling posture. While those moves mostly involved cuts such as furloughs, temporary salary reductions, and a pause on store remodels, the chain is still investing in growth. It plans to spend $250 million on high-impact strategic initiatives and is actively recruiting for key management positions.
The good news is that the retailing chain is already more than halfway through its planned $1 billion inventory reduction effort and counts more than $1.4 billion of cash on the books. That position gives executives plenty of flexibility to navigate through a potentially rough sales period.
Management gave investors their first look at the scale of that temporary slump, too, by saying sales dropped 42% overall through the first two weeks in April despite significant gains in the online sales channel.
The fluid demand trends make cash a priority today. "Now is the time to stay liquid," Tritton said, "until we have more clarity on the global situation surrounding COVID-19."