Activists Say Bed Bath & Beyond Should Oust CEO and Sell Assets

(Bloomberg) -- The activist investors in Bed Bath & Beyond Inc. say the retailer could unlock about $1.9 billion of value if it were to hire a new chief executive officer, improve inventory and explore selling non-core assets.

Legion Partners Asset Management, Macellum Capital Management and Ancora Advisors proposed those changes and others on Friday in a 168-page report with their diagnosis of Bed Bath & Beyond’s problems -- from stagnant sales to “excessive” pay of the CEO -- along with their solutions for fixing them. These include a 100-day plan to improve retail performance and replacing chief Steve Temares, who they argue has overseen an underperformance relative to peers since he was appointed in 2003.

“Under the current CEO, the company’s operational performance is deteriorating at an accelerating pace and he must be removed immediately and replaced with a highly qualified and capable leader,” the group said.

In response to growing pressure from the investors, the company this week named an independent chairman and replaced five directors. It also said it would form a committee to review its transformation strategy and structure. The company has previously said it invited the activists to participate in a board refreshment program, which they turned down.

Most of the operational issues identified by the activists are already incorporated in its own transformation plan, as well as ones that have in the past been considered and continue to be, Bed Bath & Beyond said in a emailed statement Friday. It would consider input from the investors and was open to holding a dialogue with them about their ideas, the company said.

“While we have been and continue to be open to engaging with the activist group, we note that the activist group has steadfastly declined to engage in a constructive dialogue with the company, and instead, has chosen only to release its perspectives in a public forum,” the company said.

The moves made earlier this week by Bed Bath & Beyond were “too little, too late,” the activists said Friday.

The investors want the company to explore selling Cost Plus World Market, Christmas Tree Shops, PersonalizationMall and potentially Buy Buy Baby as well. A sale of non-core assets could generate about $1.4 billion, they said.

‘Archaic’ and ‘Bloated’

The trio of investors also want the company to address what they call an “archaic” supply chain, “bloated” cost structure, and executive compensation they said is excessive.

Bed Bath & Beyond needs to revamp its product assortment to follow consumer trends and improve online sales and marketing, among other measures, the investors said. The company didn’t even mention “Amazon” on a conference call until December 2016, they argue, highlighting how reticent management has been to embracing change in the retail sector.

If the Union, New Jersey-based retailer were to follow its recommendations, the company would achieve more than $5 per share in annual earnings, up from $3.12 a share in 2018. It could also generate more than $600 million in annual free cash flow in the next three to five years.

Bed Bath & Beyond’s shares, which initially fell, rebounded and were up 0.7 percent at 12:16 p.m. in New York, giving the company a market value of about $2.2 billion.

The group, which launched a proxy fight at Bed Bath & Beyond in March, reiterated its call for shareholders to support their slate of nominees for the board.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Jonathan Roeder, Anne Riley Moffat

©2019 Bloomberg L.P.