Summary
- Bed Bath's Investor Day discussed: fiscal 2021 expects flat sales growth.
- Gross profit margins are guided to increase by 150 basis points to 35%.
- Bed Bath to buy back 9% of its market cap over the next 4 months.
- Ultimately, the stock is meaningfully undervalued and worth considering.
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Investment Thesis
Bed Bath & Beyond (BBBY) undergoes a meaningful transformation and sheds underperforming assets. It's deploying $225 million, or 9% of its market cap, towards share buybacks over the next 4-month period.
It has a clear line of sight on reaching $500 million of EBITDA in fiscal 2021 and growing its EBITDA slightly into fiscal 2023. I declare that investors are overly pessimistic this highly-shorted stock and that this investment is worthwhile considering.
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Revenue Growth Potential?
Bed Bath recently had its highly awaited Investor Day. The biggest takeaway on the top-line is as follows:
(Source)
As you can see above, fiscal 2021 is expected to be flat (or stable) y/y with fiscal 2020. However, digging into the quarters, we can see that Q1 2021 will be very strong, as this year stores were closed due to COVID.
Then, as Bed Bath progresses through Q2, Q3, and Q4, Bed Bath declares that revenues should be flat y/y, given the strong base from this year.
Looking further afield, into fiscal 2022 and beyond, there should be low to high single-digit growth rates:
(Source)
If that was all there was to the story, I would not believe that there would enough here for investors to hold onto the stock, but I do assume that there's more potential below its top-line.
