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Here's Why Bed Bath & Beyond Stock Plummeted 37% in September

By Jon Quast – Oct 6, 2021 at 3:24PM

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Management is having a hard time predicting sales, and analysts are lowering their expectations.

What happened

Shares of Bed Bath & Beyond (BBBY 0.28%) plummeted 37.3% in September, according to data provided by S&P Global Market Intelligence. Most of this drop came at the end of the month when the company released financial results that disappointed investors and analysts alike. The stock has continued its slide into October and now sits a painful 73% down from its high in 2021.

So what

Bed Bath & Beyond was supposed to be in the early phases of a multiyear transformation to get sales back on track. But in the second quarter of 2021, the company only generated sales of $2 billion, which was down 26% year over year. This comes after a 1% year-over-year decline in the same quarter last year.

A woman covers her eyes while sitting in front of an open computer.

Image source: Getty Images.

Several Wall Street analysts downgraded their outlooks for Bed Bath & Beyond following the quarterly report. An analyst with Baird cut the price target from $33 per share to $19, according to The Fly, citing concerns over inflation and supply chain disruptions. Likewise, a Bank of America analyst also thinks this stock will underperform the market, with a price target of just $14.

Of course, analysts don't determine where a stock heads long term; it's just their opinion. But a $14 price target would mean more downside for shareholders if this analyst is correct. And that's something no investor wants to see. But there is an ongoing reason for concern.

BBBY Chart

Stock performance in 2021 for Bed Bath & Beyond compared to the S&P 500. BBBY data by YCharts.

Now what

In the conference call to discuss second-quarter results, CEO Mark Tritton said that August was the worst month of the quarter. But he frightened investors further by then saying, "The challenges we faced in August have not abated in September." In other words, the rest of 2021 isn't looking as good as hoped. 

As a result, Bed Bath & Beyond lowered full-year sales guidance from a range of $8.2 billion to $8.4 billion, to a range of $8.1 billion to $8.3 billion. To be fair, full-year sales guidance was raised in the first quarter. So although management lowered sales guidance in the second quarter, it is still higher than where it started the year, at $8 billion to $8.2 billion. 

If there's a positive takeaway for investors, it's that Bed Bath & Beyond had positive operating cash flow even if sales have been hard to predict. In the second quarter, it had $75 million in operating cash flow. And management has committed to rewarding shareholders even beyond this cash flow by buying back $100 million in stock during the quarter. It's also committed to repurchasing around $100 million more for the fiscal year.

Share repurchases are helpful when done right, and can boost overall shareholder returns. But long term, it will be important for sales to start heading higher and according to management's transformation plan.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jon Quast 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.

Stocks Mentioned

Bed Bath & Beyond Stock Quote
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$3.61 (0.28%) $0.01

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