Summary
- E-commerce revenue increased 85% in April, making up in part for lost store sales.
- Online capacity doubled, with 25% of BBBY's stores converted into regional fulfillment centers to support online sales.
- Meanwhile, in the aftermath of December purge, BBBY hired a new CFO and new Chief Digital Officer.
There is plenty of retailer bashing going around today. Even those who believe that most stocks have already taken their medicine - shares for Bed, Bath, and Beyond (BBBY), for instance, stand at approximately a third of their 52-week high - still find reason for criticism, and in many cases it's warranted. However, we want to be objective and report on positive developments when they do happen. For BBBY, this was actually a very good week, related to sales and management.
Key Updates on BBBY
Playing by new rules: In the past, we noted that Bed, Bath, and Beyond faces a catch-up effect, as it must achieve a proper balance between the online business and physical store locations. In this day and age of coronavirus, this is no longer a matter of convenience; it is a matter of survival. Recall that the company recently extended its store closures until May 16 (from May 2), and we actually believe that all stores can be open/operational no earlier than July. Regardless, we have seen some very positive data on the digital side come out of BBBY.
E-commerce revenue is up 85% in April: This is exactly where we want Bed, Bath, and Beyond to be. By demonstrating such solid growth in digital revenue, there are two messages that the company sends: 1) a large proportion of offline sales has been supplemented; 2) the smoothness of offline-to-online conversion operations make it fairly easy for BBBY to withstand physical stores closures. Arguably, April was supposed to be the most difficult month for the retail industry, not so much because it is the very first full month of stay-at-home activities, but because of the reigning transition chaos. BBBY has clearly met this test.
Online capacity doubled: The company not only doubled online capacity, but also added hundreds of new positions at e-commerce distribution centers. Simultaneously, BBBY expanded the number of locations that customer can buy products online and do a store pickup, or potentially use contactless curbside pickup. Approximately 25% of BBBY's stores have been converted into regional fulfillment centers to support online sales.
A new model? This in itself raises questions about what the new model for BBBY could look like when the pre-coronavirus world is restored. We believe that greater efficiencies would be achieved, as fewer physical stores and fewer employees to run them would be needed: this may translate into stronger EBITDA and EPS figures longer run. We are obviously not making any changes in our model at present; however, we note that such prospects can offset some virus-related negativity that exists in the multiple.
Management changes continue: It is fascinating that, despite the business turmoil, BBBY remains focused on management changes. Specifically, the company appointed Gustavo Arnal as the new Chief Financial Officer, in addition to naming a new Digital Officer. Mark Tritton, himself a CEO since late 2019, delivered on his promise to shakeup senior leadership, after essentially pushing out at least six C-level executives back in December. The company is in acute need of "new blood" - and we continue to see it.
Timing is everything: We welcome the change in leadership not so much because of the acquired talent (Arnal, for instance, brings CFO experience from Avon), but because the new CEO sees the current coronavirus challenge as an opportunity. He could have waited at least until May 16th, when stores are scheduled to reopen; yet, he chose to do it now, which signals decisiveness and intent to signal continuity.
