10 Reasons to Avoid Bed Bath & Beyond Stock

Bed bath and beyond (BBBY -4.04%) has been prominently in the news with the firing of its CEO at the end of June, the introduction of a sweeping restructuring plan, and the death of its CFO in early September. A little squeeze also made it a “meme stock” and a hot topic among retail investors.

But the problems did not start recently. Bed Bath & Beyond has been a fundamentally weak investment for many years, and I think investors should still avoid Bed Bath & Beyond stock for ten simple reasons.

Image source: Getty Images.

1. Your sales are falling

Bed Bath & Beyond comparable store sales decreased in fiscal years 2016, 2017, 2018 and 2019. It stopped disclosing its full-year comparisons in fiscal years 2020 and 2021 due to the pandemic, but its net sales still fell. considerably in both years. As of the first quarter of fiscal year 2022, its compositions have already fallen for four consecutive quarters. Analysts expect its annual revenue to continue to decline for the foreseeable future.

2. Your inventories are increasing

As your sales growth stops, your inventory levels increase. The company ended the first quarter of 2022 with $1.76 billion in merchandise inventories, representing 13% growth over the prior year. During that same period, net sales fell 25% year over year to $1.46 billion.

3. Your margins are shrinking

If a retailer’s inventories are increasing faster than its revenues, it needs to use markdowns to liquidate its excess inventory. Unfortunately, Bed Bath & Beyond has already been discounting its products for years without significantly increasing its sales.

Between fiscal 2015 (the last year it posted positive comparison growth) and fiscal 2021, its gross margin decreased from 38.1% to 31.5%. It has dropped further to 23.9% in the first quarter of 2022, and that contraction is likely to continue as the company grapples with inflation and supply chain headwinds.

4. It is profoundly unprofitable

Bed Bath & Beyond has not generated a full-year GAAP (generally accepted accounting principles) profit since fiscal 2017, and analysts expect it to remain in the red for the foreseeable future.

Those losses persisted even as it closed its weakest stores and shed its non-core banners in recent years. He also recently announced that he would lay off around 20% of his staff, close 150 weaker stores and eliminate a third of his own brands to further rein in his spending, but those efforts won’t guarantee his survival.

5. You are running out of cash

Bed Bath & Beyond ended the first quarter of 2022 with just $107.5 million in cash and equivalents, compared to $1.1 billion a year earlier. Therefore, you need to focus on cutting costs and conserving cash, which should prevent you from making significant investments to expand your e-commerce ecosystem or renovate your physical stores.

6. You are carrying a lot of debt

Bed Bath & Beyond still had about $900 million in total liquidity after taking into account its revolving line of credit, but that’s a dire situation for a company that still has $1.38 billion in long-term debt and is burning through cash every quarter.

It recently secured $500 million in fresh financing, which could allow it to stay afloat for a few more quarters, but that cash won’t last long if the company doesn’t quickly implement some aggressive turnaround strategies.

7. You want to sell more shares

To raise more cash, the company plans to sell up to 12 million shares of common stock, which would increase its outstanding share count by about 15%. You may be hoping to capitalize on your reputation as a meme stock to sell more stocks, like gamestop Y AMC previously, but market reaction to that announcement has been lukewarm so far.

8. You still need a permanent CEO

To repair their sinking ship, Bed Bath & Beyond needs a visionary captain. However, it has just fired its CEO, Mark Tritton, who was hired as its recovery lead in 2019, following a dismal first-quarter report. Sue Gove, an independent director on the board, is currently taking her place as interim CEO of the retailer, but is still actively seeking a permanent CEO.

9. Your experts are getting paid

Gove initially attracted a lot of attention by buying 50,000 shares of Bed Bath & Beyond on July 1 at an average price of $4.61, nearly doubling his stake in the company. However, other experts are not following his example. In the last three months, they sold nearly 10 times as many shares as they bought. Activist investor Ryan Cohen, who had been one of Bed Bath & Beyond’s biggest bulls, also liquidated his entire position last month.

10. It has no moat

Finally, Bed Bath & Beyond does not yet have a competitive advantage. Its sales fell in recent years because it couldn’t keep up with larger retailers like Amazon, Goal, walmart, and IKEA, and its brand is likely to continue to fade as it closes its stores and discounts merchandise. It may be too late to stop that moat from shrinking. He held out a little longer than many of his peers, but he could meet the same fate as Sears and JC Penney.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. leo sun has positions in Amazon. The Motley Fool has ratings and recommends Amazon, Target, and Walmart Inc. The Motley Fool has a disclosure policy.

Leave a Comment