• Bed Bath & Beyond was sent too low and still has a lot of room to recover further. It's still undervalued by a great margin.
• The new CEO, Mark J. Tritton, is effectively active since the 4th of November. The market reacted very positively to his appointment.
• He should prove his worth in the coming quarters. New initiatives from him should provide more upside for the share price.

Investment Case

Bed Bath & Beyond (NASDAQ:BBBY) implements the right strategy to return to revenue growth and, more importantly, higher profitability. It appointed a great new CEO, Mark J. Tritton, to which the market reacted positively. Bed Bath & Beyond is still a profitable company. It pays a well-covered dividend. The share price is still down more than 80% from its all-time high, despite the 100% recovery from this year's low. They will survive the retail apocalypse and come out stronger. I will refer to the company as Bed Bath further on.

Data by YCharts

Mark J. Tritton, The New CEO, Called For By Activists

The new CEO came to Bed Bath after activist investors, Legion Partners, Macellum and Ancora Investors, attacked to previous CEO earlier this year. In cooperation with these activists, there were also new board members appointed in May. They wanted a new strategic plan which consists of the following:

Revamp executive management - recruiting a top-flight CEO to lead Bed Bath going forward and instill a world-class winning culture. We plan to launch a search in the near term to address this key position.

Reverse sales weakness - fixing the merchandise over-assortment problem through a detailed SKU rationalization process as well as developing a merchandise architecture that will better resonate with customers. Making the in-store experience something that drives traffic to the stores will be a major priority.

Turn around Company culture - increase focus on employee training and education to improve motivation; empower employees to better use technology and improve customer experience.

Significantly expand gross margins - improve vendor relations and drive profits by establishing a direct sourcing strategy and private label program as well as fixing mix issues created by the Company's shift to commoditized and lower margin products.

Implement cost cutting - conducting an extensive reassessment of the increases in expenses over the last five years, including the explosion of the Company's advertising budget, seemingly endless array of initiatives that have failed to produce meaningful results and extensive use of consultants.

Improve inventory - increasing inventory turns which would result in a substantial release of cash tied up in slow moving goods.

Fix capital allocation - reviewing all non-core businesses and assessing their value as part of the business or their potential value to other parties. Excess cash created could be applied to share or debt repurchases, both of which are significantly accretive given discounted trading levels. Lastly, the increase in capital expenditures will be addressed.

Source: Business Wire

So far, the only thing that is executed is the revamp of executive management. There are initiatives for the other highlights, but they still have to be executed or have to prove themselves. This is where the opportunity lies. The CEO has the right background coming from Target as Chief Merchandising Officer. As he implements and executes on these strategic initiatives, we should see a recovery in Bed Bath's financials. Along with the recovery of the financials, higher multiples become justified again as well. So, while the share rebound of 100% since August looks spectacular, it's only the beginning.

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