A new Bank of America report claims the company has cut air conditioning in an effort to quickly cut expenses to make up for falling sales.
Bed Bath & Beyond told CNN that any changes to store temperature guidelines did not come from the company. “We were contacted about this report and to be clear, no Bed Bath & Beyond stores were directed to adjust their air conditioning and there have been no changes to corporate policy regarding the use of utilities,” a representative said.
Still, Bank of America analysts who have made store visits report growing concerns, including work hours that have been significantly cut, reduced utilities, reduced store operating hours and the cancellation of remodeling projects. The bounty programs have also been scaled back and replaced. Analysts expect Bed Bath & Beyond management to soon announce more store closings and halt the opening of its Buy Buy Baby stores.
Meanwhile, forced sales and price reductions are running rampant. The company continues to offer lofty promotions that include up to 50% off bedding and furniture, free same-day shipping, $10 off a $30 purchase, and 20% off purchases by college students and their parents.
But analysts at Riley Securities don’t see such sales promotions as helping much. They significantly lowered their price target for the retailer’s shares from $17 to $7, citing a decline in store traffic. An easing of Covid restrictions means lower demand for household items and supply chain issues have led to a lack of inventory to attract customers, they said. Competitors including Walmart and Target have seen their traffic remain flat, analysts noted, while Bed Bath & Beyond is declining 20% to 30% year over year.
Bank of America analysts believe sales will fall another 20% this quarter.
“The company has underperformed the industry and we believe consensus estimates [of an 18% drop in sales] can be optimistic,” they wrote.
The Zacks Equity Research consensus estimate for the retailer’s earnings is now pegged at a loss of 1.28 per share, a 2,660% decline from last year. Bed Bath & Beyond has an average negative earnings surprise over the past four quarters of 4,700%, according to the financial research firm.
Other worrying factors for the company include the resignation of two key financial executives in recent months, chief accounting officer John Barresi resigned in May, and Heather Plutino, senior vice president of financial planning and analysis and trade finance, also left the company.
A sale of the spin-off brand Buy Buy Baby also seems less likely, analysts at Bank of America said. Activist investor RC Ventures, which owns a nearly 10% stake in Bed Bath & Beyond, advocated selling the brand earlier this year, and buyers have expressed interest. However, analysts do not believe that the interest can withstand these latest recessions. “We continue to see challenges in completing a deal given BBBY’s worsening financial position and rising high-yield spreads,” they wrote.
Analysts at Riley Securities said they believed the sale or spin-off of the business could have unlocked $1.5 billion to $2 billion worth, but no longer believe a sale is imminent as the business winds down.
Although the retailer is likely to incur a few more quarters of sustained pain, there is still hope, analysts said.
Tritton took over as CEO of the housewares business after leaving his job as Target’s chief business officer in November 2019 and quickly instituted a massive turnaround plan.
“The turnaround is taking longer than expected to materialize due to supply chain challenges and entering a more challenging retail operating environment,” analysts at Riley Securities wrote, but “we believe Bed, Bath & Beyond is heading in the right direction”.