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Sunday, October 2, 2022

Why Shares of Bed Bath & Beyond Were Falling on Thursday

What happened

It has been a rough past few days for Bed Bath & Beyond (BBBY -8.60%). The home goods retailer was down again on Thursday, dropping as much 9.5% in morning trading. By 3:20 p.m. ET, the stock was still down about 7.7% to $8.80 per share.

It has been a bad week for the markets overall, but there were some specific catalysts that drove Bed Bath & Beyond lower on Thursday.

So what

Bed Bath & Beyond fell sharply on Wednesday following the release of a strategic update by the company. As my colleague Jeremy Bowman reported yesterday, the struggling retailer announced it would reduce costs by $250 million this year by closing some 150 underperforming stores and laying off 20% of the workforce. It will also reduce capital expenditures from $400 million to $250 million this year to further enhance its balance sheet. In addition, it touted a $500 million financing agreement with Sixth Street Partners and JPMorgan Chase to improve its liquidity and pay its vendors.

The announcement did not sit well with investors, or analysts. Today, two analysts downgraded the stock, including Bank of America‘s Jason Haas, who lowered the price target from $2.40 to $2 per share. That represents a 77% drop from its current level. Haas worries that the company’s cash burn could worsen if vendors cut payable terms, reported The Fly.

Also, Raymond James downgraded Bed Bath & Beyond to underperform. Analyst Bobby Griffin cited current “abysmal” business trends and “ongoing cash burn” as the financing only “kicks the can down the road,” reported the Fly.

Now what

It has been a difficult year for the retail stock, as the share price has plummeted 39% year to date as of Sept. 1. While the cost-cutting and financing fixes are a step in the right direction, Bed Bath & Beyond faces major headwinds as the economy is expected to slow and discretionary spending will likely shrink in the months ahead.

Given these trends, it is unlikely the company will see any positive sales momentum in the near term. In the update, Bed Bath & Beyond projected a 26% decline in comparative sales in the current quarter, compared to the same quarter a year ago, and for fiscal year 2022 it anticipates comparative sales to be down roughly 20% year over year.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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