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Bed Bath & Beyond: Next Steps After Management Changes

RJ Hottovy
Jul 1, 2022
Bed Bath & Beyond: Next Steps After Management Changes

Key Bed Bath & Beyond Metrics

In what is typically a quieter news week for the retail category as we close the books on the second quarter of 2022, Bed Bath & Beyond announced significant management changes, the most notable being board member (and former Golfsmith CEO) Sue Gove assuming the role of interim CEO following the departure of Mark Tritton. The company also announced that Mara Sirhal will assume the role of Chief Merchandising Officer, replacing Joe Hartsig who departed the company. Sirhal most recently served as Bed Bath & Beyond's General Manager for the Harmon brand as well as General Merchandise Manager of Health, Beauty & Consumables. The retailer also announced the naming of Laura Crossen as Chief Accounting Officer and Susie Kim as Senior Vice President of Treasury and Investor Relations. The company has retained Russell Reynolds to assist in the search for a permanent CEO.

  • Upon joining the company in 2019 following a role as Target’s Chief Merchandising Officer, Tritton set about on an ambitious plan to close underperforming locations, renegotiate leases where possible, remodel continuing stores, and expand the chain’s private label assortment—many of which mirrored initiatives successfully put in place by Target during Tritton’s tenure. Bed Bath & Beyond also shed a number of non-core businesses including Christmas Tree Shops and Cost Plus World Market while evaluating strategic alternatives for buybuy BABY (management noted that it will continue to “evaluate the options of the business and unlocking [its] future potential”).
  • We’ve called out some positives from Bed Bath & Beyond’s results over the past several months, including the potential of the company’s online and store-in-store partnerships with Kroger, and the initial set of remodeled stores from 2021 that have been outperforming the rest of the chain (though still slightly behind visitation trends across the rest of the home furnishing sector, as we’ve shown below). Nevertheless, in the words of management, the company’s performance—including a 27% decrease in Bed Bath & Beyond banner comparable-store sales—“requires an adjustment to strategy and a deep focus on basic operational execution. The results…are not reflective of our capabilities and potential. We should be achieving so much more.”
  • Among the factors that the company feels it must address is an “acute shift in customer sentiment…[including] steep inflation and fluctuations in purchasing patterns, leading to significant dislocation in our sales and inventory” that the company will work to actively resolve. Management pointed out that the arrival of delayed unit receipts (due to port constraints) was met with sharply lower demand because of the aforementioned changes in sentiment. This led to a higher inventory of approximately 15% during the quarter compared to the same period a year ago at a time when sales were 25% lower. According to CFO Gustavo Arnal, “this delta of almost 40 percentage points between sales and inventory is worth more than $500 million in cash.”
  • Gove highlighted several parts of the business that are working (private label—particularly at opening price points—buybuy BABY; omnichannel capabilities like buy online, pick-up in store (BOPUS), same-day delivery, and a new loyalty program launched last week) and several that need to be addressed (stabilizing its supply chain, reducing structural costs, lowering inventory, and strengthening its balance sheet). To this end, management announced several near-term initiatives, including aggressive clearing of excess inventory, more aggressive cost cuts (above the previously announced $100M expense optimization program), a reduction of planned capex for the year by at least $100M to $300M, prioritizing supply chain and related technologies (while pausing remodel activity for the remainder of 2022), and engaging retail advisory firm Berkeley Research Group to review its inventory and balance sheet.
  • From a capital standpoint, management claims that it has sufficient liquidity to continue its transformation. The company had a cash and investment balance of approximately $200 million with $700 million available under its credit facility at the end of 1Q22, but also borrowed an additional $200 million from its credit facility since the quarter closed. According to Arnal, the company is “working with its financial advisors…[and] there are avenues that we're exploring to even increase further liquidity and navigate through the working capital cycle, particularly in the next two quarters, given the seasonality of [the] business.”

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RJ Hottovy

Head of Analytical Research, Placer.ai

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for nearly 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank.

R.J. also brings a wealth of experience with early-stage investments as an investment committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he has advised over 50 foodservice and foodservice tech companies on more than $200 million in early-stage capital raises and M&A transactions.

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