Bed Bath & Beyond’s Meteoric Rally Fades as Competition Picks Up

(Bloomberg) -- Bed Bath & Beyond Inc.’s shares have almost quadrupled in the past year thanks to pandemic-driven home makeovers and its new-found status as a meme stock. But that party is winding down.

The Union, New Jersey-based retailer’s shares outpaced peers like Wayfair, Inc. and Target Corp. as consumers poured money into home renovations and small appliances during the pandemic, with the stock at one point attracting a cult-like following on Reddit and other trading forums.

Fast forward to the start of the second half of 2021, more Americans are returning to work and U.S. retail sales for June due on Friday will show further declines, according to economists surveyed by Bloomberg. As a result, analysts say there may be little room for Bed Bath & Beyond to rise further.

“If these tailwinds dissipate, then I really wonder what happens with this company’s results,” said Anthony Chukumba, an analyst at Loop Capital Markets, who has a hold rating on the shares. “The rising tide lifts all boats, but Bed Bath & Beyond is not being lifted as much as the other boats. And what happens when the tide goes out? That’s my concern.”

Bed Bath & Beyond posted first-quarter results on June 30 that were seen as positive and the shares jumped 11% that day as it raised its full-year-outlook. But the metrics weren’t as glowing as some of its peers: quarterly sales topped analysts’ projections by about 4%, while both Williams-Sonoma and At Home Group Inc. exceeded estimates by about 15%. The shares have erased most of those gains and were last trading at $29.51.

“The quarter was good,” said Jaime Katz, an analyst at Morningstar Investment Service, who considers the shares overvalued. “It’s still lagging the performance of the broader home furnishing tier set,” though, based on operating margins and sales growth, she said.

About 19% of Bed Bath & Beyond analysts tracked by Bloomberg have buy ratings on the retailer, compared with 60% who recommend buying shares of RH and 47% who have buy ratings on Wayfair.

Most analysts acknowledge that Bed Bath & Beyond has a stronger management in place since Mark Tritton took the helm late in 2019. But the retailer is struggling to compete in an increasingly digital marketplace overshadowed by Amazon.com Inc., which “can get something to your house the next day,” Katz said.

That has taken a toll on the company’s sales, which were down 25% last year from 2017 levels. At the same time, revenue at peers Wayfair, Williams-Sonoma and RH, which have strong online presence, has climbed, according to data compiled by Bloomberg.

“If 10 years ago you were thinking to yourself, ‘oh I need new towels or flatware or whatever,’ Bed Bath & Beyond would be very top of mind for those items. Now, I don’t think they’re nearly as top of mind as they used to be,” said Chukumba, “They’ve lost consumer relevance.”

Bed Bath & Beyond representatives declined to comment on the company’s stock performance and outlook.

Turnaround Efforts

Tritton, a former chief merchandising officer at Target, has introduced private brands in a move to create new revenue streams. He also cut inventory by $110 million in the first quarter from the prior three months, reducing operational inefficiencies that analysts had criticized prior to his tenure.

“This was effectively a retailer that was supposed to go out of business,” said Alexander Arnold, an analyst at Odeon Capital Group, who maintains a buy rating on the shares. Some analysts are “looking in the rearview mirror” and not appreciating the turnaround efforts under Tritton, he said.

The shares have spiked twice this year, thanks in part to retail traders in search of heavily shorted stocks who talked up the company on internet forums. They surged 43% on Jan. 27 and then 62% on June 2., both record advances. And while the stock came down from the heavens in a matter of days in both instances, it has still managed to climb 65% year to date.

While some analysts downgraded the stock during the retail-trader frenzy, others like Chukumba at Loop Capital, see it as a reason to hold onto the shares.

“Even if I don’t understand it or don’t agree with it or think its idiotic, it’s still a real thing,” he said.

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