Bed Bath & Beyond (NASDAQ:BBBY) is a much better business than it was even just a few months ago. The home goods retailer is undergoing a fundamental restructuring, shedding assets, focusing on its digital presence, and improving its financial position.

The market has rewarded Bed Bath & Beyond's turnaround by taking its stock on a meteoric rise, pushing shares up 600% from their low point back in March. There was a time the retailer was being written off and left for dead, so let's see where we might find it five years from now.

Woman examining a coffee mug in a housewares store

Image source: Getty Images.

Trimming the excess fat

The fact we can say Bed Bath & Beyond will be around in five years is a testament to how far CEO Mark Tritton has brought the retailer in so short a time. 

Before his arrival, there was good reason to believe the home goods leader would continue to struggle. Sales were falling, cash was drying up, and the competition looked unbeatable. Led by activist investors who saw the retailer squandering all the consumer goodwill that had been built up over the years, not to mention billions in scarce resources, a clean sweep was made of the C-suite and a new path was plotted.

Bed Bath & Beyond is going to be a much leaner operation. For example, it just announced it was selling its Christmas Tree Shop, its Linen Holdings unit (not to be confused with onetime rival Linens n Things that went bankrupt over a decade ago), and a distribution center. It follows previous sales of PersonalizationMall.com and One Kings Lane and is part of its attempt to also sell its Cost Plus business.

It means Bed Bath & Beyond will be getting back to its core operations of its namesake stores, as well as those of buybuy Baby and Harmon Face Values, focusing on home, baby, beauty, and wellness.

Online is the future

The retailer is also embarking on its "omni-always" mission to let consumers shop where they want, when they want, and how they want.

For too long, Bed Bath & Beyond ignored the online channel and only in more recent years did it have to spend large sums of money to play catch-up with the competition. It also allowed its rivals like Walmart, Target and Amazon.com the opportunity to enter into the home goods space and steal large swaths of market share as it squandered the opportunity provided it by Linens n Things demise.

The retailer generates only 20% of its revenue from online sales, which, while showing how far behind it allowed itself to fall, also gives it tremendous upside still as it becomes a primary point of attack.

Although the pandemic was a major setback while the home goods chain staged its comeback, it also highlighted just how fortunate Bed Bath & Beyond was to have made the investments it did. Second-quarter net sales from digital channels grew 88%, while such sales from physical stores dropped 18% from last year. Comparable digital sales were up 89% year over year.

Ready for the rebound

There is still a long way to go before Bed Bath & Beyond can be considered out of the woods. Physical store sales are going to take time to recover, but it has shed much of their financial burden by entering into a sale-leaseback arrangement. 

That creates a rent obligation it didn't have before, but should give it more flexibility to close underperforming locations more easily. It's also fortunate those stores are typically free-standing locations and not sited in shopping malls, which were suffering from declining customer traffic well before the pandemic took hold. Even retailers like Macy's will be looking to expand into off-mall locations.

Bed Bath & Beyond produced $750 million in free cash flow this past quarter, which was a significant improvement over Q1, and with virtually all of its stores reopened, it has an opportunity to build on the foundation it has set.

Its stock's rise means the home goods retailer isn't the same screaming buy it was a few months ago, but it remains at a relative discount. An investor should expect to enjoy some substantial gains over the next five years, albeit with numerous ups and downs along the way.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.