Summary
- Bed Bath & Beyond still sells a lot through physical stores.
- COVID-19 has a huge impact on this retailer.
- The balance sheet is strong enough to survive COVID-19. The first long-term debt payment is only due in 2024.
- I believe Bed Bath offers a long-term opportunity.
Investment Case
I believe Bed Bath (BBBY) will survive this pandemic and come out stronger. It will take time to recover lost revenue and an omnichannel becomes even more important. The company will go through a rough patch as long as it has to close most of its stores. The company is taking the right measures to handle this crisis and seize opportunities as well. Bed Bath looks to be valued below its long-term potential.
Bed Bath & Beyond is an omnichannel retailer selling a wide assortment of domestic merchandise and home furnishings. Most of its profits come from selling these goods through physical stores. Recent developments around COVID-19 have caused to close most of its stores. It's clear that COVID-19 impacts Bed Bath a lot in the short term and could have a long-term impact as well.
I wrote an article about Bed Bath & Beyond on December 10, 2019. I talked about the activist investors who put the new management in place. These investors and new management announced a new strategy that was focusing on getting revenue back on a growth track, improving profitability, etc. The new management came with a new CEO, Mark J. Tritton. He was received very well by investors because of his experience as Chief Merchandising Officer at Target Corporation (TGT). This article was meant to analyze Bed Bath as a long-term investment. In this new write-up, I will focus on both these short- and long-term challenges.
COVID-19 Evolution Is Unpredictable
It feels strange to talk about stock values during a global pandemic. People's lives are at risk. Healthcare systems around the world are under immense pressure. I have the utmost respect for all healthcare professionals who are dealing with this. I want to express my gratitude to them for helping us through this difficult time.
The coronavirus (COVID-19) situation can't be predicted in the short term. The virus causes a lot of economic damage, mainly because of the slowdown measures. These measures should be temporary, but the virus could come back as long as there isn't a cure or vaccine. Some companies such as Johnson & Johnson (NYSE:JNJ) have stated a vaccine will probably take 12 to 18 months to develop. It's a dark tunnel we're going through and we don't know how long it is. There is, however, a clear light at the end of it.
I believe it's important to take away that this is a crisis limited in time. This means everyday life will pick up again and the economy has a decent chance to recover. Governments and central banks are taking this seriously. They have undertaken several actions to address the economic repercussions of the virus. This gives me confidence in the economic turnaround afterward.
