The story behind Bed Bath and Beyond’s stock over the last few years has been a truly ugly one, and shows what can happen if we simply hold on to our positions and just hope.
The collapse of retailer Bed Bath and Beyond’s stock didn’t happen overnight, as the writing has been on the wall for several years now.
2013 was the company’s best year as far as net income goes, taking in $1.026 billion. 2014 saw this number drop to $969 million. 2015 saw their profits drop a little more, to $957 million, and then the wheels really started coming off.
2016 only brought in $841 million, followed by $645 million in 2017 and $424 in 2018. The company then took a $499 million write-down, adding greatly to all this ugliness, and this has led to a projected net loss for 2019 of $137 million. If not for the write-down, they would be projected to earn only $363 million in 2019, which means another year of deteriorating results with the write-down only adding to this.
Current forecasts not only have the company’s results deteriorating further in the coming year, but the one after that. Beyond that point, there is really little reason to think that this won’t just continue.
Bed Bath and Beyond broke through the $80 a share mark for a brief period of time in January 2014, right after they saw record profits. Halfway through 2014, the stock dropped all the way to $57.45, then rallied back up to close to $80 again to end out the year.
Since then, this stock has just moved straight down, and just broke though the $10 mark, its lowest level since all the way back in 1998. While declining stocks can sometimes be good bottom plays, this actually takes a bottom to work, and Bed Bath and Beyond just hasn’t hit bottom yet after all this time.
Retailing Is Tough, and this Company is Finding Things Too Tough to Manage
Retailing is a tough business these days, especially over the past few years, the ones that this company has struggled so much in. Bed Bath and Beyond not only operate brick-and-mortar stores, but they have been active in online retailing as well for some time and have established themselves as at least a niche player in this market.
We could say that they are getting hit on both sides of the business though, from Walmart with their stores, and from Amazon with their online store. People often use these two companies as excuses for a company deteriorating, but at least if we look at revenue, Bed Bath and Beyond’s is holding up quite well actually in the $12 billion a year range.
Sure, they haven’t grown this by much, and companies do look to grow their revenue over time, but their revenue has been going up a little each year at least. When you see revenue remaining stable but profits taking a nosedive, this suggests that it might be inferior management behind all this, or at least this contributing to the problem.
Bed Bath and Beyond’s margins have been on the decline, and continue to drop, and are expected to drop further. This is actually the pointy end of the stick that these big competitors use on you, as you reduce margins to look to compete and may end up doing so at a level that really reduces your bottom line.
The company recently released their 2019 Q1 numbers, and in spite of beating the analysts’ projections as far as their paltry earnings go, these projections were set quite low, as how much they are struggling is no secret. The quarterly revenue number was the lowest in 7 years of quarterly reports though, and with margins thinning as well, this is not a good combination.
Activist Investors Are Trying to Improve Things, But This May be Too Little Too Late
Back in March, three activist investment firms teamed up to try to turn this company around, in spite of the challenges of this. Their plan was to clean things up by replacing the company’s CEO and several directors on the board, which has been executed already. Former CEO Stephen Temares and 5 of their directors ended up leaving, and they appointed one of their people, Mary Winston, as interim CEO until a suitable permanent replacement can be found.
They also revealed some questionable acquisitions that were bought from the children of Leonard Feinstein and Warren Eisenberg, who co-founded the company back in 1971 and still sit on the board as co-chairman, and used these as examples of the bad business practices that the company has engaged in.
The company operates 1,530 stores across all 50 states, Puerto Rico, and Canada, which includes 1,020 Bed Bath and Beyond stores as well as 280 Cost Plus Markets, 100 Buybuy Baby outlets, 80 Christmas Tree Shops and 50 Harmon’s stores.
Unlike the big store cutting that we often see with declining retailers, Bed Bath and Beyond hasn’t gone down that road yet, although there are reports that they are planning to close 40 stores and open 15 new ones, but these numbers are too small to have much of an impact upon the company.
The company’s bonds have also taken a beating, and their bonds maturing in 2044 are now trading at 67 cents on the dollar. This has taken their yield up to 8.3%, and there are some who are actually recommending them as a buy, but with the serious amount of doubt that the company will even be around in 2044, combined with the fact that bond prices go down as the company struggles further, makes this a difficult play to justify.
That’s a nice yield indeed, but at the risk of losing all of your principal or bailing on the bonds with the potential of significant capital losses if things don’t get turned around fast enough. Aside from this year’s write-off, this is still a company that is making money, but its profits have dropped from a billion dollars a year to a third of that in just a few short years, and this is a very disturbing trend that we should want to see at least stabilize before we relax our guard too much.
Analysts that follow this stock still have them rated as a hold or neutral, but if this stock has not been a sell and a strong sell at that over the past few years, we need to wonder what it would take to qualify for this. You could use their chart over the last 4 years to teach people about downward trendlines, although with the reservation that it’s rare to see one this clean and obvious, that’s how bad the stock has been doing.
Targets for this stock range between $12 and $14, which doesn’t seem that unreasonable given that it was trading at $19.41 on April 10 of this year, but we’ve gone straight down since then and lost almost 50% in the 3 months since.
The company is at least trying harder to right their ship, but the worry is that their business model has crumbled too much and will continue to do so in spite of whatever efforts that they can manage. People are even worried about how wise some of these changes may be, such as Bed Bath and Beyond’s trimming of the amount they will be providing by way of coupons, by both offering less and placing more restrictions on the ones they do offer.
This certainly may improve their margins, something that does need to be fixed, but at the expense of sales, where lower margin sales that at least provide some profit may be eliminated. This could leave them with less profit overall, not more. That cannot be the goal or even an acceptable outcome.
There are some big holes in this ship and we need to see a lot more than they have shown us so far to expect anything but it sinking further into the water and maybe even to the bottom of the sea.