Bed Bath & Beyond (BBBY) just can't catch a break.
After years of lackluster performance, the selection of former Target executive Mark Tritton as CEO in October 2019 provided a glimmer of hope. A few months after taking over, however, he was battling a COVID-19 headwind mostly by himself, having released several key executives just a few weeks prior. We've seen digitally driven growth a handful of times since then. But in retrospect, the timing of the decision to streamline the company by divesting distracting operations like Cost Plus World and Linen Holdings -- right in the middle of a pandemic -- may have been ill-advised. Impairments and losses on those sales of brands have kept the company in the red.
And now, though lockdowns ultimately proved beneficial to the retailer's top line, analysts are doubting its future. KeyBanc analyst Bradley Thomas says the world is on the verge of deprioritizing making nice at-home environments and reprioritizing experiences. The analyst community is collectively calling for a 12% slump in sales in the upcoming fiscal year to follow this year's 17% sales setback.
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As the old adage goes, though, you own a company for where it's going rather than where it's been. While Tritton et al. still have plenty more regrouping to do, they're on the right track with the right ideas and the right team in place.
Worse before better, but better is on the radar
That's not an easy-to-believe premise given what investors can readily see. Yes, digital sales grew a whopping 94% year over year during the quarter ending in November, but overall sales growth was still only a little better than even. Adjusted EBITDA was still a razor-thin 1.6% of total sales. It's hardly thriving, and the outlook is far from thrilling.
There's something big in the works for investors looking more than a year down the road, however. If the home goods retailer can just get through another rough year, results should start to improve in 2022 and beyond.
Data source: Thomson Reuters. Chart by author.
The $64,000 question is, of course: What can Bed Bath & Beyond plausibly do to actually turn earnings around next year and rev up sales in 2023? The answer is, more of what it's already doing.
New and improved is in development
It's been lost in all the recent noise of politics and the coronavirus, but Tritton has already begun rebuilding Bed Bath & Beyond as a retailer that will remain relevant even once COVID-19 is in the rearview mirror. For example, in September it unveiled same-day delivery of certain online orders, one-upping home goods rivals like Amazon, and putting pressure on other local shopping alternatives like Walmart.
Tritton knows such niceties aren't going to dramatically win new customers, though, so he's thinking bigger, including thinking right down to the product level.
Part of the Bed Bath & Beyond revitalization plan announced in January of last year includes a rethinking of the very products found on stores' shelves. The company has named a new Senior Vice President of Merchandise Planning, a General Merchandising Manager, a Chief Brand Officer, and a Chief Merchandising Officer, just to name a few; most of these are newly created roles. It's also worth noting that in October, the retailer (finally) confirmed it would be diving deeper into the private label arena over the course of the coming year and a half. Bed Bath & Beyond is planning more than 10 new "owned" brands for launch in its stores and online, meaning the company will develop these higher-margin products from the ground up rather than relying on selling the same goods that national brands supply to other retailers.
Tritton is largely credited with making Target's private labels the smashing success they are for the company today -- they are estimated to drive around a third of its sales. This bodes well for his new employer.
Finally, know that Bed Bath & Beyond is stepping up its digital game in ways well beyond an expanded online shopping assortment. The organization is aiming to meld its stores and supply chains to work together in a way that supports its so-called "omni-always" mode of thinking. Its new platform will be better able to monetize data on its existing customers, including using artificial intelligence to predict future product demand.
Settle in for the long-term
It remains to be seen what Bed Bath & Beyond will ultimately be, particularly in an environment that's still killing off retailers with impunity. It's far too extreme to say this home goods name is doomed simply because it's a retailer, however. Tritton clearly knows that for his store chain to survive, it has to blend brick-and-mortar and digital shopping, and it has to capitalize on its smaller size so it can compete with the likes of Amazon and Walmart.
From what we can see of its current efforts and the future environment, though, the continued retail apocalypse is actually an opportunity for a more modern-minded retailer to capture those displaced customers. It's certainly not the kind of pick to make an all-in bet on. But, for investors with room in their portfolios for a couple of longer-term speculative plays, this isn't a bad one.
