Bed Bath and Beyond (BBBY): Restraining Your Urge to Sell

Retailers all across the spectrum have been having serious trouble lately. The coronavirus closures have done no one any serious favors, and most of the retail sector is still trying to recover.  The news has been especially brutal for Bed Bath and Beyond (NASDAQ: BBBY), but as much as you may want to, dumping your position right now may not be the best play. 

It Was Never That Great To Begin With

Bed Bath and Beyond was a specialty retailer, to say the least. Sure, they have some noteworthy products, but it's easy to see where a weaker economy might keep people out of this shop. The stock price, which has held to a surprisingly narrow range over the last year, illustrates that well.

The company has held its value surprisingly well, but the downside to that is that it didn't have a lot of value from the word go. It spent most of 2019's second half into the early days of 2020 trading at a share price between $7 and $15 a share. The holidays gave it a little knock upward, and there were signs it could sustain increases over the $15 mark...until the obvious happened. The Massive Indiscriminate Coronavirus Sales Event hit the company like a pile of buses, taking the company from $15.62 on February 6 to $3.56 on April 2.

Recovery did follow, and the company is actually now trading around the same level it was this time last year, with yesterday's close at $10.41 per share pretty much on par with where it was all of last July.

Then The Bad News Really Started

About the only real patch of good news for Bed Bath and Beyond is that analyst consensus right now doesn't especially support a massive sell-off. The consensus right now is weighted to hold, with four buy ratings, four sell ratings, and eight hold ratings. Consensus price targets, meanwhile, suggest there's room to grow, but not much: consensus price targets are at $10.68, which is a little more than a quarter over yesterday's close.

The bad news, meanwhile, is enormous and terrifying. Recent revelations that the company lost $302.29 million in the second quarter were bad enough, if familiar given the nature of the second quarter. A further word that the company plans to close 200 stores in the next two years, meanwhile, only get worse from there. Reports of lawsuits targeting the company for unpaid rent during the coronavirus closures don't help matters much either.

Moreover, the company's executive team is pretty much brand new; much of its team joined the company just in the last several months, and they were already tasked with turning the store around from its slow decline. Now they're going to have to turn around the slow decline that accelerated rapidly thanks to a pandemic.

However, there's a note of hope here; though the company's planning to close 200 stores, it has 955 to its credit, and several subsidiaries, including Buy Buy Baby—which is pretty much what it sounds like, gear for babies—and Cost Plus World Market, home of various tchotchkes and some pretty interesting food options from around the world are contributing to the bottom line as well.

Time To Sell? No, Not Now....

So why shouldn't you just sell everything, take what profit you have—if any—and run for the door? Well, there are actually good reasons. Remember that pretty much everything sold under the Bed Bath and Beyond umbrella is tailor-made for homes, and people are likely to be sticking a lot closer to home in the near-term future.

We've already seen this to a certain extent. People are taking the money saved for vacations, and spending that money on home improvements instead. They've perhaps realized it's less than effective to travel any distance to a point where, if you're lucky, you might be allowed to sit in a restaurant, if you're wearing a mask, sign a waiver, and double-pinky-swear not to exhale in the direction of another human being. Bed Bath and Beyond make a pretty good starting point for augmenting your home into a pseudo-resort.

The company's stock price recovery seen in June underscores such an idea wonderfully. Moves to bolster online presence and use some current stores as fulfillment centers certainly helped as well; this takes advantage of the consumer's tendency toward “showrooming”, a phenomenon where customers use brick-and-mortar stores to go hands-on with a product, make a buying decision, and then search the internet for the best price.

Throw in Bed Bath and Beyond's subsidiaries, and there's a very real potential for this company to lead the way in the stay-at-home stakes. It just needs to get that word out to the regular shopper, and it might be able to produce the turnaround it hired all those fresh executives to get.