Bed Bath & Beyond Inc. (BBBY - Get Rating) operates a retail store chain. The company sells domestic merchandise, bath items, kitchen textiles, and home furnishings. It sells its offerings through various websites and applications.

The company announced leadership changes in June, replacing CEO Mark Tritton with the head of the strategy committee and independent director Sue Gove as CEO on an interim basis. The top management replacement came after billionaire activist investor Ryan Cohen criticized the retailer for an “overly ambitious” strategy, overpaying top executives, and failing to reverse market share losses.

However, to everyone’s surprise, a securities filing released last week showed that Cohen exited his position in BBBY, dumping its stock on Tuesday and Wednesday. Cohen is Chewy’s (CHWY) co-founder and GameStop Corporation (GME) Chairman.

BBBY saw a huge trading volume this month due to a resurgence in meme stock trading, becoming the dominant topic of conversation on Reddit’s WallStreetBets page. The stock has a 41.46% short float. It has gained 89.9% over the past month. However, the stock plummeted 40.5% intraday to close its last trading session at $11.03.

Here are the factors that could affect BBBY’s performance in the near term:

Bleak Financials

For the fiscal first quarter ended May 28, BBBY’s net sales decreased 25.1% year-over-year to $1.46 billion. Adjusted EBITDA declined 360.5% from the prior-year quarter to a negative $224 million. Adjusted net income and adjusted EPS came in at a negative $225 million and a negative $2.83, down 4,600% and 5,760% from the same period the prior year.

Negative Profitability Margins

BBBY’s trailing-12-month gross profit margin of 31.04% is 15.4% lower than the industry average of 36.70%. The stock’s trailing-12-month net income margin of a negative 11.74% is significantly lower than the industry average of 6.16%. Its trailing-12-month ROE, ROTC, and ROA of a negative 195.47%, 6.69%, and 17.51% compare to their respective industry averages of 15.82%, 7.09%, and 5.23%.

Bleak Bottom-line Growth Expectations

The consensus EPS estimates of a negative $1.56 and a negative $1.14 for the respective quarters ending August and November 2022 indicate 4,000% and 356% year-over-year decreases. Street EPS estimate for the fiscal year 2023 of a negative $6.04 reflects a decline of 459.3% from the prior year. Likewise, Street revenue estimate for the same year of $6.52 billion indicates a 17.1% year-over-year decrease.

POWR Ratings Reflect A Bleak Outlook

BBBY’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

BBBY has a Stability grade of F in sync with its five-year monthly beta of 1.91. The stock also has an F grade for Sentiment, consistent with its unfavorable analyst expectations.

BBBY has a Growth grade of D, which is justified by its bleak bottom line growth in the last reported quarter.

In the 62-stock Home Improvement & Goods industry, it is ranked #59.

Click here to see the additional POWR Ratings for BBBY (Value, Momentum, and Quality).

View all the top stocks in the Home Improvement & Goods industry here.

Bottom Line

Although the stock has seen high trading volume this month amid the return of the meme stock frenzy, the sustainability of its recent gains remains questionable. Moreover, its negative ROE is concerning, and BBBY might face liquidity issues. So, considering Wall Street analysts’ 12-month price target of $3.84, which indicates a 65.2% potential downside, I think the stock might be best avoided now.

How Does Bed Bath & Beyond Inc. (BBBY) Stack Up Against its Peers?

While BBBY has an overall POWR Rating of D, one might consider looking at its industry peers, Acuity Brands, Inc. (AYI - Get Rating) and Bassett Furniture Industries, Incorporated (BSET - Get Rating), which have an overall A (Strong Buy) rating, and Masonite International Corporation (DOOR - Get Rating) and Builders FirstSource, Inc. (BLDR - Get Rating), which have an overall B (Buy) rating.

BBBY shares were trading at $10.00 per share on Monday morning, down $1.03 (-9.34%). Year-to-date, BBBY has declined -31.41%, versus a -11.89% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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