Bed Bath & Beyond

  • Homeware merchandizer, Bed Bath & Beyond, reported 1Q20 results which missed on   both the top and bottom lines. Bed, Bath & Beyond is comprised of its own   namesake stores as well as Buybuy Baby, Christmas Tree Shops and Harmon Face   Values (which specializes in healthcare and beauty products).

  • Revenue   came in at $1.31 billion, a nearly 50% drop from the year-ago quarter.

  • The company made a net loss of $302.29 million, or $2.44 per share, from $371.09   million, or $2.91 a share, a year ago. Adjusted, to exclude once-off items,   the loss per share was $1.96 compared to adjusted net earnings of $0.12 a   year ago.

  • Sales were impacted by coronavirus-induced store closures, with around 90% of   stores having remained closed in the quarter. In-store sales declined 77% in   the period. The company had to rely on online sales which jumped 82% during   the period, and accounted for about two-thirds of 1Q20 sales. The digital   channel saw usage increase over 100% in April and May as consumers stocked up   on cleaning supplies and home decor.

  • Margins were squeezed by direct-to-consumer delivery costs, and consumers opting for   more low-margin items. Margins were also impacted by greater supply-chain   costs and higher expenses for labor and the cleaning of stores. Gross margins   fell 7.8% from 34.5% to 26.7%.

  • CEO Mark Tritton says trends are currently shifting from cleaning supplies, water   filters and coffee, to bigger-ticket items like home decor, bedding and   accessories for the backyard - which should help profit margins in 2Q20.

  • The company ended the first quarter with approximately $1.2 billion in cash and   investments. And recently secured a new $850 million line of credit. No   mention was made as to how it would be used.

  • The company announced plans to permanently shut 200 of its 1478 stores, in an   effort to return to profitability. This should generate annual cost savings   of between $250 – $350 million, excluding the related one-time costs for   doing so.

  • There is a risk that non-essential retailers like Bed, Bath & Beyond may have to re-close stores as coronavirus cases spike. Gross margins have declined 3.9% per year on average over the past five years, suggesting low profitability. Free Cash Flows have also deteriorated. The company has taken on additional debt, with the debt-to-equity ratio now at 2.14x from 0.5x in 2019 according to gurufocus. Shares have fallen almost 52% this year. We prefer Amazon.com with its established shipping mechanisms and digital platform, as well as diversified consumer offerings.

Bed Bath & Beyond