Why Has Bed Bath & Beyond Hit 3-1/2-Year Stock High?

This past week the share price of Bed Bath & Beyond closed at $30.21, its highest price since May 2017. As recently as eight months ago it was a barely a tenth of that price.

What gives?

The big box home furnishings retail chain is in the midst of a turnaround — at least a hoped-for turnaround — under entirely new management and new direction following a slow but steady decline over the previous five years. It has put up some positive performance numbers — some very positive — in its omnichannel and e-commerce businesses while continuing to struggle with its physical stores, which need serious paring down and remodeling. Both initiatives are in progress but it will be some time before the payoff arrives, assuming the new merchandising strategy is the right one. BBB has been challenged by e-commerce giants Amazon and Wayfair on one side, by Walmart and Target on another and by Home Goods and other off-pricers on a third. It is not clear it will be able to fight them all off even though the initial signs have been encouraging in the first year of new CEO Mark Tritton’s tenure.

So, give Bed Bath some credit for just being a better retailer and that certainly has been a factor in its ten-fold stock price rise. Wall Street loves a good turnaround story, especially one that promises more to come.

But that alone doesn’t explain the entire stock spike. Several other factors are in play:

        • Of course the entire stock market has been doing well so BBB is just going with the flow. But more importantly, share prices for retailers in the home furnishings sector are outperforming the overall market as consumers spend more time at and more money on their homes. From that same bottoming out in the early stages of the pandemic when non-essential stores were shut down, high-end retailer RH has seen its stock go from around $100 in March to over $500 the past month. Wayfair, which made its first profits ever the past two quarters, has seen an increase in its share price comparable to BBB, going from under $25 in March to more than $350 earlier this month. Bed Bath is in the right spot at the right time, no question about it.

        • The retailer is already seeing many positive results from its omnichannel initiatives, including e-commerce sales, buy-online-pick-up-in-store ordering and curbside pick-up, all of which were severely behind industry standards previously. Even though its physical comp store sales continue to be a drag on revenue, they are more than being made up for by its online sales. Tritton has described all of this as not just low-hanging fruit, but “fruit laying on the ground,” but wherever it is, Wall Street is hungry for such tasty good news.

        • BBB is also a darling of the shorts, speculators who love to bet the stock price will go down. TV financial guru Jim Cramer says 68% of the company’s stock has been bought by short sellers in anticipation of its price declining. But just recently online trading advisors and social media sites like Reddit have been encouraging their followers to buy stocks like Bed Bath and “bust” the short sellers. Apparently it’s working as seen by the 58% stock jump just since the start of the year. If the shorters are finally meeting their match it would certainly help explain what’s going on with the BBB stock price.

        • Finally, there is the company’s ongoing stock repurchase plan. Bed Bath had been buying back its shares for years under previous management and when the new team came in, there was some question about whether that policy would continue. Under Tritton in fact it has and if anything has been accelerated. It recently stepped up the plan with an accelerated $225 million repurchase, part of its overall $675 million buyback over a three-year period.

All of these factors have combined to help drive the surge in the company’s share price over the past few months. They also might be harbingers of what’s to come. The home furnishings business is expected to remain strong for at least the better part of 2021 and perhaps beyond, giving the retailer a good base to work off of. It also is expected to kick in some of the merchandising and store remodeling initiatives it has said are in the works. A major private label program will debut this spring, the first developed under Tritton who previously was the head merchant at Target where he helped roll out a number of very successful brands.

Bed Bath is testing an assortment of store remodeling prototypes in the Houston market now and expects to expand that to some 125 stores by the end of the year. This while it continues to close down underperforming stores, more than 60 this year and perhaps as many as 200 in total before it’s over.

The store closings are in fact the one warning sign for the stock. When Tritton came on board in November 2019 the company operated around 1,500 stores, including about 1,000 under its namesake banner. Since that time it has sold off two good-sized brands — Cost Plus World Market and Christmas Tree Shops — and with the closing of 200 BBB stores, its total store count should fall to around the 1,000 mark with a corresponding drop in the company’s top line. Wall Street didn’t like that the last time BBB reported its quarter but this will continue for the next several quarters, at least.

But in the meantime Bed Bath & Beyond is riding a stock market high it hasn’t seen in years. There is a little perspective worth noting: In the 2013-2015 period the company’s stock traded as high as $78 when it was a darling of investors. The fall ever since was ugly and resulted in an investor revolt that turned over the entire board of directors and upper management.

But for now call BBB a work in progress…one that Wall Street is loving.