Shares of Bed Bath & Beyond (BBBY) were up 15% as of 12:11 p.m. ET on Wednesday. Despite falling sales and profits, the meme stock is apparently back after the market indexes saw a big rebound over the past month.
The company took a big profit hit last quarter, as higher inflation and shifting purchasing patterns pressured sales. Even with the blows to the company's financial performance, the stock is up 63% year to date, significantly outperforming the S&P 500 index's return of 10.6%.
On Tuesday, analysts at Odeon Capital issued a downgrade on the shares to a sell rating. It's a rational call given the company's struggles that are not just related to the current macroeconomic headwinds but have been going on for the past decade.
Management said in the last earnings report that it was moving quickly to bring supply in line with demand as consumer spending took a sharp downward turn last quarter. But it's not clear if Bed Bath & Beyond can compete effectively in the online retail market.
Sales are 28% lower than 10 years ago, and gross margin has steadily deteriorated from 40% to percentages in the low 30s. As more home goods spending shifts online, Bed Bath & Beyond is clearly having a difficult time keeping up with leading e-commerce stores.
Management has launched a new retail media network and loyalty program, on top of executing a store remodeling project. It's also adding new distribution centers on the East and West coasts.
The outlook calls for improving sales in the second half of the year, although same-store sales are still expected to be down. The stock is cheap, trading at less than 0.3 times sales. There is upside potential, but Bed Bath & Beyond needs to prove it can deliver sustainable growth. That's a difficult question to answer.