Shares of retail giant Bed, Bath and Beyond (NASDAQ: BBBY) are currently trading 100% higher in early-market trading on March 7, 2022. The massive uptick in its stock price can be attributed to Ryan Cohen’s rising stake in the company. Cohen is the billionaire co-founder of Chewy (NASDAQ: CHWY) which is an online pet-products retailer.
A report from the Wall Street Journal claims Cohen’s investment company RC Ventures is pushing Bed, Bath & Beyond to streamline its strategy and explore strategic alternatives. Cohen’s stake in BBBY stands at 9.8% which is currently valued at approximately $250 million. The investment makes Cohen among the top-five shareholders in BBBY stock.
In the letter accessed by WSJ, Cohen criticized the business strategy of the retail heavyweight and emphasized that BBBY’s turnaround efforts are not specific to the company but are too broad in nature.
According to Cohen, a narrower focus on operational efficiency as well as inventory management is extremely important for Bed, Bath & Beyond. RC Ventures has urged BBBY to consider a sale or spin-off of its baby segment vertical with its children's apparel and accessories business.
Bed, Bath & Beyond, on the other hand, explained it will act in the best interests of shareholders and review strategic suggestions.
Will BBBY stock manage to sustain the ongoing rally?
Bed, Bath & Beyond operates a chain of retail stores. It has two segments which include North American Retail and Institutional Sales. The company sells a range of domestic merchandise in more than 1,000 stores in 50 states.
Bed Bath & Beyond increased comparable sales by 4% and adjusted earnings by 5% year over year in the fourth quarter of fiscal 2021, which ended in February. In Q1 of fiscal 2022, sales were up 3% compared to the same period in fiscal 2022, allowing it to report adjusted earnings of $0.05 per share. It had then forecast sales between $2.04 billion and $2.08 billion with earnings between $0.48 and $0.56 in Q2 of fiscal 2022.
The company also raised its full-year guidance for fiscal 2022 and estimated sales between $8.2 billion and $8.4 billion while adjusted EBITDA was projected between $520 million and $540 million. It also expected earnings to range between $1.40 and $1.55 per share in 2022.
But Bed Bath and Beyond missed its revenue guidance in Q2 as its sales totaled $1.99 billion, due to rising freight costs and a constrained supply chain environment. Its adjusted earnings were 92% below Wall Street estimates at $0.04 per share in the quarter ended in August.
The company’s insipid performance meant its revenue guidance for 2022 was slashed by $100 million. Comparatively, its EBITDA outlook was lowered to between $425 million and $465 million while EPS estimates narrowed to between $0.70 and $1.10 per share.
What next for Bed, Bath & Beyond stock?
Bed, Bath & Beyond continued to disappoint investors in Q3 of 2022 as well. Its comparable sales declined by 7% while revenue was down 14% year over year at $1.88 billion. A decline in top-line meant the company reported an adjusted loss of $0.25 per share in the November quarter.
The disruptions surrounding supply chains and increase in freight costs continued to weigh heavily on retail companies due to the Omicron variant. These issues are expected to continue to hurt company financials due to the ongoing conflict between Ukraine and Russia.
In fiscal 2022, Bed, Bath & Beyond now expects adjusted EBITDA between $290 million and $310 million, a decline of more than 40% in the last six months.
We can see that the company’s business is declining rapidly as it continues to lose market share.
While the increase in stake by Ryan Cohen has cheered investors, the management team will have to take a number of steps to drive sales and profit margins higher.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
