Even with a new CEO in place with an impressive track record in retail, and investors providing a 22% gain in one day in a vote of confidence, this is far from a solid stock yet.
The retail sector has fallen upon some pretty hard times overall, taking several long-standing successful companies and washing them up on shore from the wave that has ensued. Bed Bath and Beyond’s fall has been notable even in a world where struggle has now been so commonplace.
In a truly ugly period that has been going on for almost 5 years now, Bed Bath and Beyond stock has fallen from $77 a share, where they had two 7’s in their price, to being left with only one, as in $7 a share. It’s not only that this stock had lost 90% of its value, it’s the way that it was lost that really stands out, with the bulls not even putting up much of a fight in their trend downward all this time.
There have been some times where the market has tried to prop up this stock and it has shown signs of promise, but each time the optimism was beat back in a decisive fashion and we just continued further downward.
One of these times was in 2019, and on April 10 Bed Bath and Beyond was actually up almost 70% year to date and was off to a roaring start. Another bad earnings call ensured, and then activist investors stepped in, had the company’s CEO Steven Temares turfed, and put in their own person, Mary Winston, to lead the company while they search for a more suitable replacement.
The stock simply went straight down over the next 4 months, only bottoming out in mid-August, going from up 70% year to date to being down 38%. This saw its stock price drop to a level unseen since 1997, in spite of all their troubles over the past few years. Back then, the stock climbed to the $7 level on the way up, but their return back was much less glorious and much more ominous.
In spite of seeing the great start that BB&B had to the year in the first quarter, this move was more like fool’s gold than the real thing, and anyone who was really that bullish on this company simply weren’t paying much attention to the declining numbers. There even were those who saw the company sink so low and then start to move, and they may have thought that the mid-teens were a good entry point to mount what may have appeared to be a comeback on the charts at least, but then reality got the best of them.
If you were looking to trade this, you could have made some serious money doing it around this time, or at other times throughout the year when it went on one if it’s mini-comebacks, but these trades would have to be very carefully managed to make sure that you got out before it resumed its normal course downward.
The fall last April was a decisive one though and not one that should have gotten people caught too much, unless greed or hope ruled their world. It does with plenty of people though, and for those who were prepared to ride out a move from $19.41 to $7.40 in just four months, they got all of the pain that they bargained for and then some.
This move down was a particularly brutal one in terms of its lack of buying support, and there weren’t even much in the way of blips along the road. While BB&B’s virtually straight down move of this size occurred after the company came under activist pressure, sometimes you need to take a few steps backward, or even fall backward onto the ground in this case, to move forward.
BB&B Looks to Save Their Sinking Ship with a New Captain
There was much wrong with Bed Bath and Beyond at that time, and for the most part there still is, but at least there has been a renewed effort to at least try to right the ship. You can only suffer for so long, and while BB&B was at one time a leader in retail, it has fallen upon some seriously hard times where the company’s very survival now is in question.
Bringing in an interim CEO to at least look to shake things up at a time where the same old management had them falling more and more behind was clearly understandable, and Winston did speak of things like improving their retail experience to give people a better reason to shop with them, or in many cases, to come back.
Stores also needed to be cut, and as a general rule, retailers will stubbornly delay or postpone doing the right thing here in hopes of a turnaround, but BB&B’s decline has been more organic and waiting this out likely will mean waiting to die. We have only seen a couple of stores close so far since this transition and more closures may be needed.
Winston has finally been replaced herself with a permanent CEO, Mark Tritton of Target, who had been doing such a great job there that Bed Bath and Beyond made the decision that he was the right person to lead them now. Given the company’s history of shaky management and dismal results, this can only be a move in the right direction, and possibly a good one indeed.
Analysts have noted that BB&B simply has not been able to compete with Amazon, and the type of products that BB&B offers is right in Amazon’s wheelhouse so to speak. BB&B does offer its customers a face to face, in store experience, which is worth something if you get this right, and that’s where the focus has rightly been now placed.
They simply aren’t going to be able to compete with Amazon on price, due to their overhead costs, and Amazon does this without having to bother themselves with the expense of stores and this is a huge advantage for them for those who shop simply on price. BB&B has been guilty of too much of this lately and they will need to seek out another strategy if they expect to stay alive longer-term.
If you’re going to spend the money on brick and mortar operations, you better make sure that you can justify this in terms of the value added with your locations, and trying to fall back upon the long history of success with brick and mortar outlets or trying to ignore the fact that this is a new day with new competition just won’t cut it.
One of the first things that happened during this leadership transition was Winston remodeling 75 stores during her tenure as interim CEO as well as sharing her more forward-looking vision of this as a modern and vibrant place to shop.
Tritton will certainly have his hands full with this task, and be challenged in a way that is well beyond anything he has faced in his current roles, but at least there is someone at the helm now that has at least proven himself very well elsewhere, which at least breathes some new hope into the project, as difficult as it may prove to be.
While many remain skeptical, there is one thing that Bed Bath and Beyond has going for it if you were looking to jump on here and were looking for good reasons to do it, and that’s the massive short interest that this stock has. Over half of their shares have been loaned out and shorted, which means that there is a huge amount of potential buying pressure waiting in the wings for the stock to punish these short sellers enough that they have to cover.
53% Short Interest Make This an Interesting Trade at Least
This is called a short squeeze and can really can help drive the price of a stock upward during rallies. Some of this has already gone on with the stock’s move from $7.40 to over $12 that we saw on Thursday after the new CEO announcement, but we still have over half of the company’s shares exposed to this potential squeeze and this in itself is even more tempting than a golden knight riding in to try to save the company, at least shorter-term anyway.
The short squeeze and the company’s outlook have to align properly for this to work, otherwise they gain and you are the one that gets squeezed. With some positive news lately, including this latest one, things may be ripe for the short sellers to get squeezed a fair bit if not a lot.
Short selling is all done on margin, and with a stock this beat up, the risk to the downside if you are on the short side is considerable, so if a stock starts to rally enough this can produce quite a bit more buying action from these shares being bought back.
We need to realize though that short squeezes invoke temporary increases in a stock’s price, and if we could imagine what would happen if they all covered in a short period of time, this would shoot the stock price up a lot further than it would be otherwise, which would then be subject to correction. We would then likely see a lot of profit taking and you don’t want to be one of the ones that refuses to take these artificially high prices when you can get them, because this is like a sale and sales only go on for a limited time.
BB&B has had a history of earnings misses, but they actually exceeded estimates the last time around, so they at least have broken this streak. They did miss revenue estimates though and overall the market saw this all as pretty neutral, unlike Tritton’s appointment which it is really excited about it seems.
The earnings estimate for the fourth quarter is only 3 cents a share though, down from 29 cents per share in the previous quarter, which they beat by 5 cents. This speaks to how the company continues to move in the wrong direction, and they will need to find a different way to compete for them to ever be able to get moving in the right direction again after such a long hiatus.
While it would be quite reasonable to maintain a wait and see attitude as far as the longer-term prospects of this company, and committing to this stock beyond just riding this or subsequent moves up does seem like a real mistake and far too risky, this doesn’t mean that we should rule out getting in while the getting is good and get out when the bears start beating things back too much.
Perhaps the stock will recover and put in some very healthy gains, and the potential is certainly there, unlike with many distressed stocks which are just too sick to move around very much. Just getting back to where it was in April will have it gaining about 50% from here, and the wait for this may not even be that long with all that short interest bailing and really helping out the cause.
A new CEO, a new outlook, and especially all those bears on the short side may actually have this looking like a very good play right now, even after all the gains that the stock has made thus far in this move, We were already up over $2 a share from the lows before this announcement, and even after another $2 a share boost on Thursday, there be even more in the tank.
Needless to say, this is by no means a low risk trade overall and if people are in it or looking to play it, any legitimate pullback will represent a level of unacceptable risk which should not be trifled with. This is especially a concern should BB&B get back to the habit of missing their earnings forecasts, and with the bar only set at 3 cents a share for December’s call, coming in below that would not be good news at all.
With the right amount of care and consideration though, there is some real potential, not so much for the company but with its stock at least.
Back in July, CNN wondered if Bed Bath and Beyond had run out of time. Perhaps they have ultimately, but they are putting on a strong face and looking to fight harder, which is the most anyone could expect, and just what we want to see if we’re looking to see all those short sellers get punished even more.