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Is Bed Bath & Beyond Stock a Buy?

By James Brumley – Apr 27, 2020 at 8:01AM

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The home goods chain was already fragile before the COVID-19 outbreak. The pandemic sucker-punched the vulnerable company.

Home goods retailer Bed Bath & Beyond (BBBY -1.62%) looked oh-so-close to a turnaround. It hired a proven retail chief in Target executive Mark Tritton in October as its new CEO, finally filling the vacancy left behind by Steven Temares' resignation in May of last year. Then, in December, almost every executive besides Tritton stepped down. While disruptive, the clean slate would allow Bed Bath & Beyond to begin the difficult process of rebuilding itself for relevancy in the 2020s. Tritton even picked out his first new deputy in March, choosing Walgreens Boots Alliance Chief Merchandising Officer Joe Hartsig to do the same job for Bed Bath & Beyond's stores.

And then, the coronavirus pandemic took hold, shutting most retailers down for far longer than any of them might have initially expected. Bed Bath & Beyond is one of those mothballed retailers. Its buybuy BABY stores are still open and its namesake stores offer curbside pickup for online orders, but it's waiting for the day when it can finally reopen its doors. 

It will eventually reopen those closed locations too. That's not a reason to step into a new position in Bed Bath & Beyond though, now or later. It may not be fair, but the home goods chain may have been dealt a critical blow that could take months -- if not years -- to overcome.

Metallic buy and sell dice on top of a digital stock chart.

Image source: Getty Images.

Not built for an uncertain economy

Credit has to be given where it's due. The company continues to do what it can, even while it can't do much in the way of a brick-and-mortar business. Last week, it hired True Value Company's CEO John Hartmann to be Bed Bath & Beyond's chief operating officer. Earlier this month it announced a decision to postpone a $150 million investment planned for this year -- including store remodels -- but earmarked $250 million to invest in the most immediate opportunity: The "essentials" that are still selling in droves, and technology that facilitates BOPIS (buy online, pickup in store) purchases. April's online sales were up 90% as of the middle of the month.

This is a company, however, that may not have much of a second act for the economic environment we're apt to be in once the coronavirus contagion is finally contained.

On Thursday, the Department of Labor reported more than 4.4 million people newly filed for unemployment benefits during the previous week. That was down from the prior week's figure of 5.5 million, and below the four-week moving average of 5.5 million. They're piling up too fast to effectively count, but it looks like about 26 million Americans are now unemployed thanks to COVID-19. That sets the stage for an unemployment rate in the teens, if not higher.

Analysts have already made some major adjustments to earnings expectations for the quarter as well. Standard & Poor's is modeling second quarter earnings of $30.17 per share for the S&P 500, down from $40.14 for the same quarter a year earlier. And that was as of mid-April. Matters have arguably worsened in the meantime. The "r" word -- recession -- is being batted around more than a little bit.

Maybe we're actually at the onset of a recession, and maybe we're not. There's no sidestepping the reality, however, that at least for the next few months a lot of consumers are going to be wary of making non-essential purchases. Consumer confidence plunged in March, with the Conference Board's measure of sentiment falling from 132.6 to 120.0. Its employment trends index stumbled 44.7% last month, and we had yet to see the worst of COVID-19's effects at that time. Even those people who still have jobs are likely to think twice about buying things besides food and the basics until it's clear the global economy is on a solid footing again.

And Bed Bath & Beyond's core business lines aren't exactly necessities for anybody (or even niceties for many) if the numbers are any indication. While online sales may have nearly doubled during the first half of April, total sales for the quarter currently underway were down 42% as of the second week of this month. That's a chilling data point.

History and projection of Bed Bath and Beyond sales and income.

Data source: Thomson Reuters/Refinitiv. Chart by author.

Bottom line

Don't read too much into the message. Bed Bath & Beyond is a great brand, and Tritton is a smart guy. It also had nearly $1.4 billion worth of liquidity as of the end of February. Analysts' most recent consensus suggests the retailer is likely to lose about $200 million this year, but with $1.4 billion in the bank, it can make those BOPIS investments and still have something left over for when things finally take a turn for the better.

This is a company, however, with only half a management team in place right now, and two of the three presently in place have only been with the company for a few days. The CEO, while brilliant, has only been on board since October. Between their learning curve and the sort of challenges the retailer was facing just a year ago on top of all the unknowns stemming from the coronavirus outbreak, there's just not much of a bull case here. There will be at a later date, but there are too many better opportunities out there to take a big risk on this one.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
$6.09 (-1.62%) $0.10
Target Corporation Stock Quote
Target Corporation
$148.39 (-2.24%) $-3.40
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
$31.40 (-0.47%) $0.15

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