Bed Bath & Beyond Inc. (BBBY) operates as a retail store chain. The company sells domestic merchandise, bath items, kitchen textiles, and home furnishings.

BBBY was the most popular name during this year’s return of the meme craze. The stock rose significantly before giving up its gains after GameStop Chairman Ryan Cohen dumped his entire 10% stake in the company.

Despite the massive up move in the stock between July and August, investors have been largely bearish on the company’s prospects. The company is trying to turn its fortunes around through an inventory shake-up and announcing strict measures such as layoffs and store closures.

Investors are worried about BBBY’s ability to stay afloat despite the $500 million in financing it secured to strengthen its balance sheet. The company said that it has started closing 150 of its “lower producing” namesake stores. It is also in the process of reducing costs by laying off about 20% of its workforce.

However, BBBY’s balance sheet is still laden with significant debt. And various reports of its debt reorganization are doing the rounds. According to reports, the company has been looking at several debt-reorganizing options, including a distressed debt swap that will exchange the retailer’s outstanding bonds for new longer-term debt or equity in the company.

Therefore, the company’s bondholders are worried that any changes made to its debt structure would harm their interests if it goes bankrupt. They fear their claim on BBBY’s assets could come under attack in the event of bankruptcy.

The bondholders’ concerns are justified as Moody’s lowered the retailer’s corporate-family rating from Caa2 to Ca. The rating change to Ca indicates that BBBY is likely to default over the next twelve months.

BBBY missed its consensus revenue and EPS estimates in the last reported quarter. Its loss per share came in higher than expected at $3.22, while its revenue came in 0.7% below the consensus estimate. It has failed to surpass consensus EPS estimates in each of the trailing four quarters.

BBBY’s stock has declined 63.8% in price year-to-date and 63.5% over the past year to close the last trading session at $5.28. It is trading 82.4% below its 52-week high of $30.06, which it hit on March 7, 2022.

Here’s what could influence BBBY’s performance in the upcoming months:

Disappointing Financials

BBBY’s net sales declined 28% year-over-year to $1.43 billion for the second quarter that ended August 27, 2022. Its gross margin came in at 27.7%, compared to 30.3% in the year-ago period. The company’s adjusted EBITDA loss came in at $168 million, compared to an adjusted EBITDA of $85 million.

In addition, its non-GAAP net loss came in at $256 million, compared to a non-GAAP net income of $4 million in the year-ago period. In addition, its adjusted loss per share came in at $3.22, compared to an adjusted EPS of $0.04.

Unfavorable Analyst Estimates

BBBY’s EPS for fiscal 2023 and 2024 is expected to remain negative. Its revenue for fiscal 2023 and 2024 is expected to decline 23.3% and 4.1% year-over-year to $6.03 billion and $5.78 billion, respectively.

Weak Profitability

BBBY’s trailing-12-month gross profit margin is 29.45%, compared to the 36.42% industry average. Likewise, its trailing-12-month net income margin is negative compared to the 5.62% industry average. Also, its trailing-12-month EBITDA margin is negative compared to the 11.25% industry average.

POWR Ratings Reflect Bleak Prospects

BBBY has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BBBY has an F grade for Stability, consistent with its 1.74 beta.

It has an F grade for Sentiment, consistent with unfavorable analyst estimates. It has a D grade for Quality, in sync with its weak profitability.

BBBY is ranked #57 out of 61 stocks in the Home Improvement & Goods industry. Click here to access BBBY’s ratings for Growth, Value, and Momentum.

Bottom Line

BBBY is trading below its 50-day and 200-day moving averages of $9.10 and $12.13, respectively, indicating a downtrend. The company is desperately trying to stay afloat by reorganizing its debt as it keeps burning cash amid an uncertain macroeconomic environment.

Given its weak financials, poor growth prospects, and weak profitability, it could be wise to avoid the stock now.

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

BBBY has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Home Improvement & Goods stocks with an A (Strong Buy) or B (Buy) rating, such as Acuity Brands, Inc. (AYI), Masonite International Corporation (DOOR), and Builders FirstSource, Inc. (BLDR).

BBBY shares were trading at $5.06 per share on Thursday morning, down $0.22 (-4.17%). Year-to-date, BBBY has declined -65.29%, versus a -24.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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