[Note: BBBY fiscal year ends February]
After a massive 54% decline in the last six months, at the current price of around $8.50 per share, we believe Bed Bath & Beyond stock (NASDAQ: BBBY), the home goods retailer, could still go down. BBBY stock has declined from around $18 to $8.50 since the beginning of 2022, much steeper than the 11% decline in the S&P index. This stock decline can be attributed to the current macroeconomic environment and the company’s poor financial performance. The retailer saw its sales decline 15% year-over-year (y-o-y) in fiscal 2021. In fact, BBBY’s revenue has been continuously declining in the last five years, margins steadily contracting in the last ten years, and its profitability has stayed in the negative for the last four years.
A lack of inventory is a problem at Bed Bath & Beyond at present because of supply chain bottlenecks and difficulties with purchasing. To add to this, the ongoing tension in the Eastern European region is likely to further worsen the situation in the next quarters. Considering that the FY21 ended on February 26th, it is important to mention that most of the impacts of the political tension in Eastern Europe have yet to be reflected in these results. By the end of FY’21, the total cash of the company was approximately $440 million (down from $1.4 billion a year earlier) with debt totaling more than $3 billion. The refinancing of that debt will be quite difficult if profitability does not significantly improve going forward.
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In Q4 2021, Bed Bath & Beyond’s net sales were down a steep 22% y-o-y to $2 billion, on the back of a 12% decline in comparable sales. Additionally, the company’s bottom line suffered, as it went from a year-ago profit of $47 million to an $82 million loss (-$0.92 per share). Inflation, supply chain disruptions, and increasing gasoline prices have significantly impacted BBBY’s business, by materially increasing the expenses, and, therefore, reducing the margins.
We forecast Bed Bath & Beyond’s Revenues to be $7.27 billion for the fiscal year 2022, down 8% y-o-y. Looking at the bottom line, we now forecast revenue per share (RPS) estimate to come in at $73.25. Given the changes to our revenues and RPS forecast, we have revised Bed Bath & Beyond’s Valuation to $8 per share, based on a $73.25 expected RPS and a 0.1 P/S multiple for the fiscal year 2022. That said, the company’s stock appears expensive at the current levels, with a modest 5% discount from the current market price.
BBBY is undergoing a transformation started in 2021, which aims to fundamentally rebuild the company. Although the efforts are aimed at improving technologies and supply chains in the long term, we still haven’t seen any results. The retailer’s financial performance reflects poorly on its execution, projecting doubt about its ability to turn things around. In addition, management stated in its Q4 earnings call that they would continue with their turnaround plans, rejecting Ryan Cohen’s proposal to sell buybuy BABY. We believe that softening demand, inventory shortages, and a low amount of cash in hand will lead to another sizable loss in Q1 and hinder BBBY from turning its business around. The company also doesn’t expect meaningful improvement until the second half of this fiscal year, at best.
It is helpful to see how its peers stack up. Check out how Bed Bath & Beyond’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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