Bed Bath & Beyond (BBBY) seemed to be stabilizing last year. Under the turnaround efforts of CEO Mark Tritton, former merchandising chief at Target (TGT -3.04%), the struggling retailer finally saw progress on its comparable store sales (or comps), gross margins, and inventories as pandemic-related headwinds dissipated.

Tritton focused on streamlining Bed Bath & Beyond's business by divesting its non-core banners, closing more of its namesake stores, liquidating its excess inventory, and expanding its e-commerce platform. Those were all steps in the right direction, but the company still struggled to keep pace with Amazon, Walmart, Target, and other better-run retailers.

A shopper places items in a basket.

Image source: Getty Images.

As Bed Bath & Beyond tried to turn itself around, the bears got too greedy. At the beginning of 2021, nearly 80% of its shares were being shorted. As a result, a massive short squeeze caused its stock price to nearly triple to $52.89 on Jan. 27. But that momentum quickly faded, and its stock stumbled back to $14.58 by the end of 2021.

That pain continued throughout 2022, and the stock's year-to-date decline of nearly 60% has reduced its price to about $6 today. Let's see why Bed Bath & Beyond's stock ultimately tumbled to its lowest levels in nearly 25 years.

What went wrong at Bed Bath & Beyond this year

Initially, Tritton's turnaround efforts seemed to be working. Starting in the second quarter of fiscal 2020 (ended on Aug. 29), Bed Bath & Beyond's comparable store sales actually increased for four consecutive quarters in a post-lockdown market. Its adjusted gross margins also stabilized as it offset its inventory-reducing markdowns with the divestments of its non-core banners.

Period

Q1 2021

Q4 2020

Q3 2020

Q2 2020

Comps Growth (YOY)

86%

4%

2%

6%

Adjusted Gross Margin

34.9%

32.8%

35.4%

35.9%

Inventories Growth (YOY)

(30%)

(20%)

(30%)

(11%)

Data source: Bed Bath & Beyond. YOY = Year-over-year.

Unfortunately, that recovery abruptly ended in the third quarter of fiscal 2021 as it was derailed by inflationary and supply chain headwinds. Inflation curbed consumer spending on discretionary products, and that slowdown was exacerbated by tough comparisons to the stimulus-related tailwinds in fiscal 2020.

The supply chain disruptions then prevented it from efficiently clearing out its unwanted inventories while stocking up on the products it actually wanted to sell. Rising gas prices also squeezed its gross margins with higher freight costs. As a result, its comps declined, its adjusted gross margins crumbled, and its inventories rose throughout most of the past year.

Period

Q2 2022

Q1 2022

Q4 2021

Q3 2021

Q2 2021

Comps Growth (YOY)

(26%)

(23%)

(12%)

(7%)

(1%)

Adjusted Gross Margin

27.7%

23.8%

28.8%

35.9%

34%

Inventories Growth (YOY)

(1%)

13%

3%

7%

(22%)

Data source: Bed Bath & Beyond.

That tailspin resulted in the dismissal of Mark Tritton, who was replaced by director Sue Gove, who became the company's interim CEO in late June. The death of CFO Gustavo Arnal in early September raised even more doubts about the company's ability to turn itself around.

What's next for Bed Bath & Beyond?

Bed Bath & Beyond still hasn't hired a permanent CEO. For now, Sue Gove is focusing on cutting costs by closing about 150 of its weaker namesake stores and laying off roughly 20% of the staff.

But the balance sheet is still a mess. The retailer ended the second quarter of fiscal 2022 with only $135 million in cash and equivalents and about $500 million in total liquidity. That compares poorly to its $1.73 billion in long-term debt and $5.24 billion in total liabilities. The company secured an additional $500 million in fresh financing at the beginning of the third quarter, but analysts still expect it to post a net loss of $954 million in fiscal 2022 and rack up another net loss of $294 million in fiscal 2023.

To make matters worse, Bed Bath & Beyond recently launched an at-the-market sale of 12 million new shares -- which will dilute its existing investors -- to raise fresh cash if its dwindling liquidity dries up. But with the market's interest in meme stocks drying up in this tough market, it's unclear if it can actually sell all those shares.

It's dirt cheap for obvious reasons

Bed Bath & Beyond's stock admittedly looks dirt cheap at just 0.08 times this year's sales, and it could still experience another short squeeze since nearly 40% of its shares were still being shorted as of mid-September.

But this battered retail stock is on sale for obvious reasons. It desperately needs to execute some real turnaround strategies -- instead of postponing its nearly inevitable demise with cost-cutting tactics -- to grow again. Therefore, investors should avoid it at all costs and stick with better-run retail plays instead.