Bed Bath & Beyond is a New Jersey-based retail chain store of domestic merchandise that operates multiple stores across the regions of the United States, Canada, Mexico, and Puerto Rico. As of last February, the company, which is included on both the Forbes Global 2000 and the Fortune 500, had about 953 locations countrywide, including 771 stores in about 50 states.

The Bed Bath & Beyond stock has suffered greatly from the retail apocalypse that has been going on for the past ten years as a result of companies like Amazon, Walmart, Target, and other well-funded rivals entering the market. Additionally, lagging in the e-commerce race has been a significant factor in its downfall.

In fact, the company's stock has lost a staggering 82% over the last year and roughly 67% so far this year. Its ongoing struggle with rising inflation hasn’t helped its cause. Let’s look more closely at the situation to see if investors should consider purchasing this struggling retailer.

Operating Inefficiencies and Struggling Financials

Recent quarters have seen Bad Bath & Beyond’s operations experience difficulties, which is evident in its financials. In its most recent quarter, which was announced a month back, the company failed to meet analysts’ expectations. Its first-quarter revenue had fallen by 25% year-over-year to $1.46 billion, while comparable store sales had fallen by 23% over the same period.

The company’s net loss increased to $358 million on a GAAP basis, while on a non-GAAP basis it was $225 million, as opposed to the net profit of $5 million it had made in the same period the year before.

Bed Bath & Beyond had suffered this significant financial loss as a result of the sales drop. Compared to prior years, the company’s gross profit margin dropped by nine percentage points to only 24% this time.

The company’s net losses also increased to a record high level, perhaps as a result of the significant amount of old inventory that was written off. In this low-demand environment, additional transportation and inventory holding costs were also too expensive to pass on to the customer.

Bed Bath & Beyond cited this reduction to a number of factors, including supply chain hiccups, newer COVID-19 infection waves, and inflationary headwinds. But if we look at its rivals, like Target and Walmart, we can see that despite the same difficulties, they have managed to maintain a healthy growth forecast.

Therefore, a lot of investors have criticized the company’s terrible management techniques like making questionable acquisitions based on nepotism, ignoring its cluttered stores, and lavishly rewarding family members and top executives.

A Failed Turnaround Strategy

In late 2019, Bed Bath & Beyond hired Mark Tritton as its CEO in an effort to turn around its business after experiencing substantial instability in its operations. Tritton was previously the chief merchandising officer of Target. It was anticipated that this action would significantly aid the business in regaining its former prominence. But things didn’t turn out how the market had hoped.

After that, in order to aggressively control the cost structure of the business, Tritton had to lay off a number of the company’s executives and sell off a sizable chunk of its non-core companies, including the Christmas Tree Shops, One Kings Lane, and Cost Plus World Market.

In addition, he closed hundreds of Bed Bath & Beyond locations that were determined to be less successful than the other locations and sold off the company’s excess inventory at steep discounts.

His primary goal was to strengthen the business’s four primary banners, Bed Bath & Beyond, BuyBuy BABY, Harmon Face Values, and Decorist. It was also notable that he made the bold decision to spend heavily on the growth of the company’s e-commerce environment.

Unfortunately, all of Tritton’s efforts were thwarted when Bed Bath & Beyond was forced to temporarily close down its stores in the first quarter of 2020 as a result of pandemic-related lockdowns. Although the company’s comparable store sales did increase for four consecutive quarters since the beginning of the second quarter of 2020, the streak came to an end in the second quarter of 2021, and thereafter its sales plunged for four consecutive quarters.

Tritton has been replaced recently, and still the company’s future growth prospects are rather dim. Analysts feel it may even have to close a number of its other outlets in order to properly scale its operations and move towards profitability.

Inflation Leading To Lower Demand

One of the main factors contributing to the reduction in demand for the company’s products has been inflation. Everyone’s purchasing power has decreased as a result of inflation, and as a byproduct, according to Bed Bath & Beyond, customer traffic began to migrate away from its primary growth niche of home furnishings in mid-April as inflation levels worldwide began to approach record-high levels.

Additionally, throughout the first quarter, this move has become even more aggressive. Since this demand situation is anticipated to persist for a while longer, the likelihood of the company’s sales levels improving does not appear to be very high.

The Bed Bath & Beyond stock price has recently been extremely cheap, and the stock has recently been trading very close to its 52-week low. The ideal investment strategy is sometimes thought to be purchasing growth stocks at a discount, but with Bed Bath & Beyond, the situation is a little bit different. The BBBY stock closed July 15 at $4.96, but the average target price for the stock is $3.49, a potential downside of over 25%.

It will still take a long time for the company’s operations to improve, and profits are not anticipated any time soon either. Therefore, those who don’t want to take on too much risk should avoid including the Bed Bath & Beyond stock in their portfolios.

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