Bed Bath & Beyond Surges Ahead of Turnaround Plans

Shares of Bed Bath and Beyond (NASDAQ: BBBY) are up over 11% in pre-market trading today after gaining 24% on August 29. While BBBY is a popular meme stock, investors are now optimistic about the company’s turnaround plan, which will be announced shortly.

The home goods retailer secured $375 million in loan financing and is expected to discuss its restructuring plans this week, which includes the potential sale of the highly lucrative buy buy Baby business.

Bed Bath and Beyond shares have been extremely volatile, falling from $76 in January 2015 to less than $4 at the onset of COVID-19. However, retail traders initiated a short squeeze last year, driving share prices to $35 in January 2021.

Ryan Cohen sells stake in Bed Bath & Beyond

A few months ago, Chewy’s (NYSE: CHWY) founder Ryan Cohen revealed a 10% stake in Bed Bath via his activist firm. According to FactSet, Cohen’s holdings stood at 11.8% at the end of March 2022.

Cohen had then believed Bed Bath was wrestling with falling market share and supply chain inefficiencies. He also urged Bed Bath to sell the buybuy Baby segment.

In June, Bed Bath replaced its CEO with Sue Gove, a restructuring expert, at the helm. But the company continued to report less than impressive results disappointing investors in the process. It also burned cash at an accelerated pace, resulting in liquidity issues.

Bed Bath’s sales have fallen from $12 billion in fiscal 2019 (ended in February) to $7.86 billion in fiscal 2022. Due to the erosion in the top line, it reported an operating loss of $471 million in the last 12 months, compared to an operating income of $422 million in 2019.

Bed Bath ended the fiscal Q1 of 2023 with a cash balance of $108 million, compared to $1.1 billion in the year-ago period. Its net losses widened to $358 million compared to a loss of $51 million in Q1 of 2022.

But earlier this month, Cohen confirmed he intends to sell his entire stake in Bed Bath via his firm RC Ventures, which sparked a sell-off in BBBY stock a few days back.

What next for BBBY stock price and investors?

Bed Bath’s coffers are quickly drying up ahead of the extremely busy holiday season and the back-to-school periods. But due to the meme stock mania in recent week, BBBY stock has more than doubled in the last month. Its trading volumes surged over 400 million in a single session last week and it might remain volatile in the near term.

Mark Tritton, the former CEO of Bed Bath, replaced Steven Temares in 2019. Tritton soon tried to revamp the company by closing down loss-making stores, divesting non-core banners, expanding digital sales, and reducing inventory levels.

But the ongoing pandemic soon impacted this recovery and Bed Bath was soon hampered by rising costs and supply chain headwinds.

BBBY ended Q1 with an adjusted gross margin of 23.8%, compared to almost 35% in the year-ago period. Comparatively, its long-term debt stood at $1.38 billion, rising 17% year-over-year.

While investors are patiently waiting for a turnaround plan, Bed Bath continues to grapple with falling sales and negative profit margins. Analysts now expect sales to fall by 17.4% to $6.5 billion in fiscal 2023 while adjusted loss might expand to $6.04 per share from losses of $1.08 per share in the year-ago period.