Bed Bath & Beyond: Still A Compelling Turnaround Story

8/12/20

By Enterprising Investors SA

Summary

  • Bed Bath & Beyond's share price outperformed the market since March.
  • Its valuation is still cheap.
  • The high short interest could turn into a short squeeze.
  • Bed Bath & Beyond is a turnaround story. Mark Tritton makes it an omnichannel retailer.

Introduction

In my last article about Bed Bath & Beyond (BBBY) published on April 13th, I argued the company will survive the Corona pandemic. We're a couple of months and earnings results later and the stock market has turned around about Bed Bath as well. The stock price went from about $5.5 to $11 in this short time. Since then, Bed Bath outperformed the S&P 500 (SPY) and retail ETFs (XRT, FTXD). The market agrees that Bed Bath will survive.

ChartData by YCharts

Next Update: Investor Day In October

A lot changed since April for Bed Bath. During the first quarter results, it announced cost savings of $250 to $350 million. Some of these cost savings will come from 200 store closures, which will also reduce overall revenue. This should move the profitability higher. It completed the previously announced divestment of PersonalizationMall.com. This turned the abysmal results of the first quarter into a positive look forward. Bed Bath hosts an investor day in October where it will share more details about previous actions and short- and longer-term goals.

I believe the investor day will be an important moment for Tritton. He is a year CEO by then and wants to prove himself. His new management team will have to prove its worth then. A solid strategy with challenging but realistic goals should get the market excited again about Bed Bath.

Source

Balance Sheet And Cash: Still Strong To Survive

Bed Bath burned cash during its first 2020 quarter from March to May. The lockdowns and store closures forced it to shift to a digital-only company. It expected positive cash flow in June as stores reopened. Along with the available cash and a new asset-based revolving credit facility (ABL), this provides for substantial liquidity. This doesn't even include the sale of PersonalizationMall.com for $245 Million.

READ FULL ARTICLE HERE