(Bloomberg Opinion) -- When longtime Bed Bath & Beyond Inc. CEO Steven Temares finally left his post in May after pressure from activist investors, I wrote that it was a positive and overdue change. But I also warned not to cheer the departure too much, because it was just the beginning of what was likely to be a bumpy and occasionally ugly attempt at recovery for the home-goods giant.
The retailer’s Wednesday earnings report underscored that point. Comparable sales sank 6.6% from a year earlier in the first quarter, an even steeper decline than analysts had estimated and than its guidance had called for. To be fair, the sharp drop reflects a purposeful attempt to swallow bitter pills in order to save itself. The company deliberately shifted advertising spending out of the latest quarter, which may have weighed on traffic, and it’s making its notorious coupons scarcer in an effort to shore up profit.
Problem is, profitability didn’t improve. Gross margin in the quarter slipped from a year earlier to 34.5% and was at the low end of the guidance the company had put forward about three months ago. It was also lower than what Bed, Bath & Beyond recorded on this measure in the fourth quarter. In other words, it looks like the retailer all but donated market share to its competitors in the quarter without increasing the profit it earned on the sales it retained.
Bed Bath & Beyond is rightly culling less profitable items from its stores and working on improving its supply chain to help its bottom line; it should move as quickly as possible on those efforts. But this quarter’s results suggest it hasn't quite figured out a part of its profit-padding plan that is more visible to customers – specifically, its efforts to revamp couponing. While fewer coupons were redeemed, it saw an increase in average coupon amount. Its Beyond+ Membership, which essentially functions as a perpetual 20% off coupon, also weighed significantly on gross margins.
I’m not even sure Bed, Bath & Beyond is putting shoppers on a coupon diet in the right way. One of its tactics is to exclude certain items from those discounts, something I suspect simply confuses and frustrates customers.
I am in favor of Bed Bath & Beyond moving away from its desperate, tired discount strategy, but I’m not sure it should be so aggressive in doing so when it hasn’t yet given shoppers compelling, alternative reasons to come to Bed Bath & Beyond. Why not wait until it has widely rolled out remodels that could make its stores less cluttered and easier to navigate?
Bed Bath & Beyond was already struggling to draw traffic, but I worry now it has dug a hole for itself that is going to be hard to climb out of.
It appears its interim leaders may have come to the same conclusion that I have. While the company under Temares had repeatedly stressed a “bias” toward improving profitability over near-term sales, interim CEO Mary Winston said in Wednesday’s press release that one of four key near-term priorities is “stabilizing and driving top-line growth.”
I think that’s the right call. Another priority she called out was reviewing the company’s portfolio of retail brands, a move I’ve long argued would be constructive for a turnaround. The Bed Bath & Beyond empire consists of a motley crew of stores, and I think it’d be better off dumping some of them to focus on the main business.
The company has yet to name a permanent successor to Temares. But at least these latest priorities hint that the current leadership is willing to break from his failing ways.
To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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