The meme stock crowd -- and the Reddit crowd in particular -- is celebrating this week's news that activist investor Ryan Cohen has taken an interest in retailer Bed Bath & Beyond (BBBY). Shares jumped as much as 85% on Monday after Cohen disclosed a new, nearly-10% stake in the company and then delivered a letter to Bed Bath & Beyond's board describing changes he'd like to see the retailer to make in the name of unlocking shareholder value.
The stock later peeled back to a gain of "only" 34% and fell again on Tuesday as more profit-takers crawled out of the woodwork. Nevertheless, shares are still higher than they were as of the end of last week, and plenty of investors remain hopeful that Cohen's efforts will bear fruit. These profit-takers aren't finding too much trouble finding willing new buyers.
The $64,000 question is, now what?
Ryan Cohen's beef with Bed Bath & Beyond
If the name rings a bell, it may be because Ryan Cohen is the founder of online pet store Chewy (CHWY 1.92%) as well as the activist investor pushing for major changes at video game retailer GameStop (GME 2.56%). Even before his work as the (relatively) new chairman of GameStop has begun in earnest, he's setting his sights on Bed Bath & Beyond.
Chief among the opportunities he sees for Bed Bath & Beyond are improved inventory management and a tighter focus on fewer initiatives. He's also not a fan of the retailer's "outsized" compensation plans for management at a time when the company and its stock have underperformed.
And perhaps he's got a point. Even with this week's heroic gains, the stock's still only priced where it was in the latter half of 2020, mostly weighed down by the company's struggle to navigate supply-chain challenges linked to the COVID-19 pandemic. For perspective, the S&P 500 is up on the order of 20% during that time, and that's factoring in its recent pullback. Reddit investors -- and most investors for that matter -- understandably think they've got little to lose and lots to gain by letting Cohen help steer the ship.
On the other hand, always be very careful of what you ask for. You just might get it.
Reality checks all around
Retailing is a funny industry. From the outside looking in, it looks easy enough. From the inside, though, it's brutal. Competition is always stiff, and shoppers are surprisingly fickle. Just ask Eddie Lampert, the activist investor who merged K-Mart with Sears in 2005, and then took over as CEO of Sears in 2013 with the expectation that he'd be able to lead a turnaround.
He didn't. Neither did Ron Johnson, the former Apple executive hand-picked by activist investor Bill Ackman back in 2011 to lead department store chain JCPenney back to its former glory. JCPenney filed for bankruptcy in 2020.
Heck, even the meme stock trading crowd that cheered Cohen's effective takeover of GameStop nearly a year ago is waiting to see measurable progress toward his goal of making it the Amazon of the video gaming world. GameStop shares are down since that saga began.
Meanwhile, Bed Bath & Beyond is in the hands of a proven retailing veteran. CEO Mark Tritton isn't just a former Target (TGT -0.54%) executive. He was Target's chief merchandising officer, and largely credited with making the company the standout that it is. He didn't just ensure the retailer had the right merchandise. Tritton led the charge to create several dozen successful private-label brands that still make Target a shopper's first stop. He's now doing the same for Bed Bath & Beyond, launching eight new in-house, private-label brands last year alone.
Image source: Getty Images.
It's not just store brands driving the admittedly slow turnaround for the home goods retailer, however. The inventory problems Cohen is pointing to? Tritton sees them too. That's why, as part of his five-pronged revitalization plan unveiled in October of 2020, he made offering the right product assortment in the right places a top priority. To this end, in early 2021 Bed Bath & Beyond upgraded its inventory management platform to a solution provided by Relex, which provides (among other things) the power of prediction.
Sometimes, however, not-so-little things like a lingering pandemic mean merchandise simply isn't available to buy. And for the record, the home goods retailer has already been culling slow-mover products and decluttering stores. It just doesn't want to move too quickly. As it learned the hard way in the third fiscal quarter of last year, reducing its assortment too much in the current environment meant shoppers couldn't find enough of anything they wanted. That's a big reason same-store sales slumped 7% for the period ended in November.
Cohen's interest isn't a reason to buy, or sell
None of this is to suggest Cohen's newest project won't boost shareholder value. He may well identify something that can be -- and should be -- fixed.
The fact that the Reddit, Robinhood, and general meme stock-following crowd have lost so much initial interest in Bed Bath & Beyond so quickly, however, suggests the huge surge was more of a short-lived short squeeze, or simply rooted in fears that a short squeeze was coming. Those fears have already faded, and the supply-demand dynamic is easing back to normal.
The good news is that while Cohen's involvement may mean little in the end, under Tritton's leadership Bed Bath & Beyond is still on the right path. It's just a resurrection effort that's going to take longer than initially hoped.
