Bed Bath & Beyond downgrade slams stock
Bed Bath & Beyond shares are down more than 36% year to date
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Shares of Bed Bath & Beyond tumbled Tuesday after the company's stock was downgraded by Baird.
The firm has placed an underperform rating and $4 price target on the retailer's stock despite a rally fueled by retail investors Monday.
"This frenzied move (>100% of the public float traded on Monday) has been driven by non-fundamentally focused market participants," Baird analyst Justin Kleber wrote in a note to clients Tuesday.
"With market share losses accelerating and BBBY burning cash, fundamental risk/reward looks unattractive, in our view."
BED, BATH & BEYOND STOCK ON BEST NINE DAY STRETCH ON RECORD
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| BBY | BEST BUY CO. INC. | 89.54 | +3.03 | +3.50% |
As of the time of publication, Bed Bath & Beyond shares are down more than 36% year to date.
The downgrade comes as Chewy.com co-founder and GameStop chairman Ryan Cohen has been working to turn Bed Bath & Beyond's struggling business around after his investment firm RC Ventures acquired a 9.8% stake in the company in March.
In June, the company announced that former Bed Bath & Beyond CEO Mark Tritton would be exiting his role. Under Tritton's leadership, Bed Bath & Beyond remodeled stores, closed underperforming stores and introduced a private label line called Owned Brands as part of a broader transformation strategy.
However, the company saw its net loss widen and sales fall during the first quarter of 2022 amid soaring inflation, a rapid shift in consumer spending patterns and declining demand in its Home sector. BBBY also confirmed to FOX Business it would discontinue the Wild Sage-owned brand of home goods the company launched in June, 2021.
Bed Bath and Beyond store sign (iStock / iStock)
"Supply chain disruptions have exposed BBBY’s antiquated infrastructure and wreaked havoc on the business at the same time the company’s pivot toward owned brands has not resonated with customers," Kleber said.
Independent board director Sue Gove is serving as interim CEO as the company searches for a permanent replacement. In addition, Mara Sirhal, Bed Bath & Beyond's general merchandise manager of health, beauty and consumables; and Laura Crossen, senior vice president of treasury, tax, and finance transformation have been tapped as chief merchandising officer and accounting officer, respectively.
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Gove has said Bed Bath & Beyond would focus on driving traffic to its stores and digital platforms in the near term. As for the long-term, the focus will be on stabilizing its supply chain, reducing costs, lowering inventory and strengthening its balance sheet.
Former Bed Bath & Beyond CEO Mark Tritton (Gary Gershoff/Getty Images | iStock / Getty Images)
"Interim CEO Sue Gove is focused on driving traffic via marketing and a new loyalty program; however, we believe turning the trajectory of fundamentals will be a tall order given the current macro/sector backdrop," Kleber warned.
Gove has also teased that a potential sale of the buybuy Baby business remains an option on the table as the company explores strategic alternatives for the division.
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"Such a transaction would obviously buy BBBY time as it looks to shore up its balance sheet and stem the decline in traffic/sales," Kleber added. "The board has cited interest in the banner; however, prior talk of a multi-billion-dollar valuation seems overly ambitious for a business with <$100M of run-rate EBITDA."
Bed Bath & Beyond executives expect same-store sales to improve sequentially in the second half of fiscal year 2022.