A pedestrian walks past a Bed Bath and Beyond store in San Francisco, California.
Justin Sullivan | Getty Images
When Bed Bath & Beyond executives speak to investors Tuesday morning, they won’t simply be reporting sales and earnings results. They must face a harsh reality: the cash-strapped home goods retailer is running out of time.
On Thursday, Bed Bath warned it might have to file for bankruptcy and said it could soon be unable to cover costs as sales lag and store traffic slacks. It also said it was struggling to keep items in stock as cash was running out and was working to fix strained relationships with suppliers.
The nationwide chain, known for its 20 percent coupons and sky-high stacks of towels and housewares, is increasingly at risk of joining the list of retailers that have closed stores and gone missing. Think, Sears. county town. radio room. Pier 1. Linens and stuff.
Moreover, the targeted turnaround comes at the same time that inflation is weighing on consumer wallets and the housing market is being hit by higher interest rates. Also, after spending the early years of the Covid pandemic at home, more people are choosing to spend money on restaurants or booking travel rather than buying cookware, a duvet or pillow.
“As the way consumers allocate their spending changes and there’s a potential recession on the horizon, it gets a lot harder,” said Justin Kleber, senior research analyst at Baird Equity Research.
The company’s stock performance also reflects its hard way forward. Shares of the company hit a 52-week low on Friday. They were trading around $1.74 early Monday for a market value of less than $151 million.
On the hunt for a comeback
Bed Bath unveiled its latest turnaround strategy in August. The plan called for drastic cost cuts to close about 150 of its eponymous stores and reduce the number of employees in the company and in the supply chain by about 20%.
Those efforts have reduced operating expenses as it tries to grow revenue: For the third quarter, Bed Bath expects operating expenses of about $583.6 million, compared to about $698 million in the same period last year, it said Thursday.
The company’s turnaround strategy also included the phasing out of some of its own brands and the return of better-known national brands. It vowed in August to work with those national brands to develop exclusive items and add direct-brand items – merchandise aimed at setting it apart and giving shoppers a reason to return to its stores.
Next Tuesday, investors will want to hear if the company has improved its inventories, if it’s managed to secure exclusive items for the holiday season, and how willing vendors have been to partner with the retailer. If Bed Bath has made significant progress in improving inventories, it could offer a glimmer of hope for the quarters ahead.
“Being the first to bring new brands and products to our customers has always been one of our missions as retailers,” Executive Vice President Mara Sirhal told investors during a business update Aug. 31. “In the domestic market, there are many D2C brands that bring their own compelling brand marketing and followers they know and want, but aren’t available everywhere.”
Emerging direct-to-consumer brands have an incentive to partner with brick-and-mortar stores like Bed Bath and Target as they offer a way to reach more customers and get some respite from the e-commerce cooldown, high marketing costs, and changes in consumer habits that have since impacted profitability have affected the pandemic began to abate.
However, brands and suppliers have been reluctant to lend to Bed Bath as mounting debt has cast doubt on its ability to pay off bills.
And sales trends have remained weak overall.
The company said Thursday it expects net sales of about $1.26 billion for the third quarter ended Nov. 26 — down nearly 33% from $1.88 billion it said reported for the same period last year. Bed Bath expects to report a net loss of about $385.8 million for the quarter, up about 40% year over year in losses. These quarterly losses include an impairment charge of approximately $100 million that was not specified.
CEO Sue Gove urged patience on Thursday, saying the turnaround will take time. She took the helm after former CEO Mark Tritton was ousted in June.
“Transforming an organization of our size and scale takes time, and we expect each quarter to come will build on our progress,” she said in a press release.
Baird’s Kleber said investors would want to know if selling trends have changed over the holiday season — key weeks that would be reflected in fourth-quarter results but could be previewed earlier.
‘Kiss of death’?
Before Bed Bath can move products off the shelves, however, it must address an even more fundamental problem: having enough merchandise to fill them.
Gove said low inventories are partly responsible for the company’s expected third-quarter losses.
The company uses the dollars it’s made during the holiday season to stock shelves with help from its key vendors, Gove said. As inventories have improved, so have sales trends, she said.
But it’s not clear if that will be enough.
“At the end of the day everyone yabba dabba doo about their newly developed strategy that they have been touting for the past six months. It’s all just a lot of talk,” said Mark Cohen, professor and director of retail studies at Columbia Business School.
Cohen said he sees the going concern warning as the “kiss of death” for Bed Bath, solidifying bankruptcy as the retailer’s only remaining option — beyond a rescuer dropping in with a cash injection or buying a stake in the company.
“Without a pivotal event of this nature, this company is dead,” said Cohen, former CEO of Sears Canada.