Bed Bath & Beyond Is A Turn-Around Play In Action

Bed Bath & Beyond Embraces eCommerce

Bed Bath & Beyond (NASDAQ:BBBY) is no fantastic stock, at least it hasn't been. Over the past few years, it has seen its share prices wind down to a two-decade low as eCommerce and discount shopping cut into revenue. When the pandemic struck, the company was on the verge of a major turnaround that, quite frankly, never really had a chance to get off the ground. Now, ironically, it seems as if the very thing that put so much pressure on the company’s top line will be the thing to save it from irrelevancy. eCommerce.

Bed Bath & Beyond Is A Company In Transition

Bed Bath & Beyond gave a mid-quarter update last month that points to positive results regarding both the companies reopening efforts as well as its turnaround. June comps turned positive for the first time in nearly two years. The comps were due primarily to eCommerce as some stores are still closed or operating at severely reduced capacity. Notably, stores that are open also produced positive comps if not enough by themselves to offset COVID-related weaknesses.

The update is particularly noteworthy because the company says cash flow has turned positive. While important for all companies, positive cash flow is of particular interest here because of the companies debt. BBBY execs curtailed excess spending when the pandemic struck to include suspending the dividend, curbing share buybacks, and a pause to debt reduction plans. Now, with cash flow once again positive, the company is at least resuming its plans to pay down debt.

Regarding the balance sheet, the company is well-capitalized but carries a large amount of debt, mostly in the form of long-term bonds. Other efforts to cut down on debt include the sale of non-core assets. These include things like PersonalizationMall.com which was just sold to 1800Flowers for $245 million. Other efforts include closing 200 underperforming locations and focusing on growth opportunities in the home, baby, beauty, and wellness categories.

The Shift To Digital Won’t Be Easy For Bed Bath & Beyond

While the shift to eCommerce is crucial for Bed Bath & Beyond’s success the change won’t be easy. It’s been proven competing with Amazon for sales isn’t that hard, the problem comes down to profits. As a specialty retailer of niche items, it commands a higher margin than what most eCommerce retailers are getting. This means profits are going to be squeezed in the near-term, at least until the company gets a better handle on the debt load.

“The impact of the COVID-19 situation was felt across our business during our fiscal Q1, including loss of sales due to temporary store closures and margin pressure from the substantial channel shift to digital... our actions to strengthen our financial position and liquidity are enhancing our flexibility and capacity to invest and rebuild our business for long-term success," says CEO Mark Tritton.

Looking forward, the company is already making plans to capitalize on eCommerce during the holiday season and in ways that will have the least impact on the bottom line. Among them are 2-hour same-day curbside pick-up, perfect for all those last-minute gifts, a feature proven successful by lifestyle retailer Tractor Supply Company.

Bed Bath & Beyond Technical Outlook: BBBY Is On The Verge Of A Big Move

The technical outlook for Bed Bath & Beyond is a little iffy. Although share prices have staged a solid rebound from the March low and the outlook is brightening if not bright, the short-interest is so high I almost choked when I saw it. Sitting at just under 60% this is the highest I’ve seen and spells potential doom for share prices. That is unless CEO Mark Tritton can pull off the turn-around and it looks, at least for now, like it is working. In that case, we might see an incredibly vigorous short-covering rally unfold sometime in the not-too-distant future. The next scheduled earnings report is about six weeks away, any indications on the company’s business for good or ill are going to be a market-moving event.