Bed Bath & Beyond Struggles with Shifting Consumer Spending Patterns

Scott Peters
29 Jun, 2022
New York City

Bed Bath & Beyond reported sharply lower than expected revenues and earnings and the company also said its chief executive has departed. 

Retailers across all sectors are facing unpredictable shifts in consumer demand. 

Furniture, apparel, and home goods, and appliances retailers scrambled to meet a surge in demand with the arrival of a pandemic two years ago.

Many of those fast moving items arrived too late because of supply chain disruptions just when the demand shifted again with the return to work and social gathering. 

The demand surge and the subsequent plunge left many retailers with unusually high inventories of unsold items and supply chain disruptions added more costs at ports and warehouses.  

Net sales in the first quarter ending in May declined 25.0% to $1.46 billion following the 22% decline in the previous quarter ending in February to $2.05 billion. 

Comparable sales in the quarter dropped 23% and fleet optimization also lowered sales by 2%. 

Comparable sales were lower across all channels as consumers focused on returning to work and preferred goods for new experiences. 

Same store sales declined 24% and digital sales fell 21% from a year ago.

Comparable same store sales at Bed Bath & Beyond stores declined 27% driven by rapidly shifting consumer spending patterns and declining demand in home goods. 

Gross margin for comparable sales in the quarter declined 850 basis points to 23.9% from 32.4% a year ago. 

Supply chain disruptions played a key role in dragging down the gross margin as higher port charges lowered the margin by 220 basis points and inventory markdowns costs were 620 basis points in the quarter. 

Adjusted gross margin excluding these charges were 32.2%. 

Selling and general expenses margin dropped 990 basis points to 43.6% from 33.7% a year ago. 

 buybuy BABY store chain held its market share and comparable sales declined in mid-single digits reflecting the current market decline. 

Loss in the quarter increased to $358 million or $4.49 a share from $51 million or 48 cents a share a year ago. 

Comparable sales across all channels and banners plunged 27% from a year ago. 

With a swift decline in sales and higher inventories, cash flow from operations turned negative to $400 million and investing activities consumed $100 million linked to store remodeling, supply chain and information systems. 

Inventories at the end of the quarter rose 15% to $1.76 billion from $1.56 billion a year ago. 

Falling sales and higher inventories in the last quarter sucked about $500 million of cash, said CFO Gustavo Arnal during the earnings call. 

Leadership Changes 

Sue Gove has been named Interim Chief Executive Officer, replacing Mark Tritton, who will leave his role as President and Chief Executive Officer and as a member of the Board.

The retailer had been battling on many fronts and Tritton initiated a turnaround plan in the fall of 2019 upon his arrival from Target.  

Large scale turnaround and pandemic induced chaos and operation missteps only compounded the company's challenges as the retailer lost market share in the last five quarters. 

Guidance and Outlook 

The company guided fiscal 2022 capital expenditure to decline to $300 million from the previous estimate of $400 million reflecting a minimum reduction of $100 million. 

The retailer also plans to align its cost structure to sales and reduce its adjusted selling and general expenses in fiscal 2022 to be lower than in fiscal 2011. 

The company plans to optimize inventory levels and increase clearance activity to sequentially improve comparable sales in the second half compared to the first half 2022. 

In the quarter, the company closed 3 Bed Bath & Beyond and 1 Harmon store. 

Company and Stock 

The retail chain Bed Bath & Beyond was founded in 1971 and sells a wide assortment of products in the home, baby, beauty, and wellness market. 

The company has 32,000 employees and operates a total of 955 stores including 769 Bed Bath & Beyond stores in all 50 states, D.C., Puerto Rico, Canada and  135 buybuy BABY stores and 51 stores under the names Harmon, Harmon Face Values or Face Values.

The company operates 12 stores in Mexico through a joint venture under the banner Bed Bath & Beyond. 

In July 2020, Bed Bath had announced the closure of 200 namesake stores over the next two years. 

Bed Bath & Beyond plunged 24.8% to $4.91 after the release of earnings and extended this year's loss to 67.8%. 

The stock traded at this level 26 years ago in Jan 1996. 

The outstanding shares at the end of the quarter on May 28, 2022 declined to 79.6 million from 106.8 million a year ago.