It is odd to ask is Bed Bath & Beyond dying because the human furnishings discounter operates 1,024 stores in North America.
However, Bed Bath & Beyond (NASDAQ: BBBY) stock fell from $76.80 a share on 30 March 2019 to $11.35 on 25 June 2019. Consequently, Bed Bath & Beyond had a market cap of $1.499 billion on 25 June 2019.
Oddly, Bed Bath & Beyond’s revenues have fallen only a little since 2015. For instance, Bed Bath & Beyond reported annual revenues of $11.881 billion on 28 February 2015. Meanwhile, the company’s annual revenues were $12.029 billion on 2 March 2019.
Thus, it appears Bed Bath & Beyond’s sales remain about the same. However, annual revenue growth fell by 2.6% during the year ending on 2 March 2019.
Is Bed Bath & Beyond Making Money?
Bed Bath & Beyond is making less money than it was in 2015, Stock row data indicates. For instance, the retailer reported an annual net income of $1.504 billion in February 2015.
However, Bed Bath & Beyond reported a net loss of -$137.22 million on 2 March 2019. Plus, annual operating income fell from $1.504 billion in February 2015 to $422.77 million four years year.
Conversely, Bed Bath & Beyond’s annual operating cash flow fell from $1.778 billion in March 2015 to $918.28 million in March 2019. Additionally, the free cash flow fell from $847.85 million to $604.10 million in the same period.
Therefore, Bed Bath & Beyond is making less money and generating cash but revenues are steady. I think those numbers show Bed Bath & Beyond is maintaining sales by discounting. Thus, sales remain about the same but Bed Bath & Beyond makes less money because expenses are rising.
How close is Bed Bath & Beyond to the retail death spiral?
On the other hand, I believe Bed Bath & Beyond is far from the retail death spiral. To clarify, the death spiral occurs when a retailer’s sales no longer generate enough cash to cover its expenses.
Fortunately, Bed Bath & Beyond is far from the spiral. To explain, Bed Bath & Beyond reported $508.97 million in cash and equivalents and $485.8 million in short-term investments on 2 March 2019. Thus, Bed Bath & Beyond had $994.77 million in the bank on that date.
Consequently, I think Bed Bath & Beyond has enough cash to survive for the foreseeable future. However, the company will need to make drastic changes to avoid the death spiral.
What is Going Wrong at Bed Bath & Beyond?
We can sum Bed Bath & Beyond’s woes up in three words; Amazon (NASDAQ: AMZN), Wayfair (NYSE: W), and Walmart (NYSE: WMT).
To explain, Amazon is the largest online retailer in America with $62.258 billion in in sales in 2018 and Walmart is the second largest with $14.668 billion in 2018 sales. Meanwhile Wayfair is the sixth largest online retailer in America with $4.83 billion in sales in 2018.
I think, Wayfair is the biggest threat to Bed Bath & Beyond because it specializes in home furnishings. Significantly, Wayfair’s sales are now larger than those of Target.com, Macys.com, Costco.com, Statista calculates. To elaborate, Statista estimates Target had online sales of $4.823 billion in 2018, Costco had 2018 online sales of $3.983 billion, and Macys had online sales of $4.8 billion for 2018.
Thus, Wayfair proves that the computer and the smartphone are now America’s favorite places to shop for home furnishings. Obviously, that threatens Bed Bath & Beyond’s very existence.
How Online Retail is Killing Bed Bath & Beyond
Not surprisingly, American online retail sales grew by 14.2% in 2018 the US Department of Commerce estimates. However, sales at North America’s largest e-retailers, such as Wayfair, grew by 17.6% in 2018.
I think online retail is growing fast because it offers better prices, a greater selection, and a far more convenient form of shopping. A soccer mom need not miss her daughter’s game to go shopping at Wayfair, for instance. Meanwhile, a Millennial woman need not interrupt her Fortnite play to order sheets from Walmart.com
Consequently, Bed Bath & Beyond is not just competing with other retailers. Instead, Bed Bath & Beyond now has to compete with all the other activities in a customer’s life. That includes binge watching of TV shows, hobbies, family, children, romance, sex, work, worship, reading, education, video games, politics, volunteering, sports, camping, etc.
Is Brick and Mortar Shopping Dying Out?
Obviously, the average person can easily talk herself or himself into doing some fun or rewarding instead of going shopping. Moreover, Amazon, Wayfair, Walmart, etc. can reduce your shopping trip to a few minutes of searching and clicking.
Under these circumstances, I have to wonder how Bed Bath & Beyond will get anybody besides the elderly, shopaholics, the ignorant, and technophobes into its stores. After all, what sane person would chose shopping at Bed Bath & Beyond over spending time with her kids.
Therefore, it could be brick and mortar shopping that is dying along with Bed Bath & Beyond. I think there are two and possibly three generations of Americans that view shopping at a store as a tiresome chore to avoid at all costs.
Accordingly, Amazon Prime had 101 million American subscribers in December 2018, Statista calculates Notably, that number was up from 95 million subscribers in June 2018. Worldometers estimates the US population was 329 million in June 2019.
Thus, nearly one third of Americans could belong to Amazon Prime. Moreover, Statista calculates the average Prime customer spent $1,400 at Amazon in 2018. In comparison, Statista estimates the average non-Prime customer spent $600 at Amazon in 2018.
Is Bed Bath & Beyond a Value Investment?
Thus, I believe people who think online shopping will disappear and customers will return to Bed Bath & Beyond are living in a dream world.
However, Bed Bath & Beyond still offers a little value for investors. For instance, BBBY shares will pay a dividend of 17₵ on 16 July 2019. Plus, the dividend is still growing it rose from 16₵ to 17₵ during 2018.
Meanwhile, Dividend.com calculates that Bed Bath & Beyond offered a dividend yield of 6.09%, an annualized payout of 68₵ a share and a payout ratio of 33.8% on 25 June 2019. Thus, Bed Bath & Beyond is still providing income even as its share price plummets, making this stock attractive to value investors.
Yet I do not think Bed Bath & Beyond (NASDAQ: BBBY) is a value investment because I cannot see how this retailer can compete with aggressive e-tailers like Amazon, Walmart, and Wayfair. Instead, I think Bed Bath & Beyond management will eventually sell out to a hedge fund like Barnes & Noble’s (NYSE: BKS) leaders did.
Why Bed Bath & Beyond Management will Sell Out
To explain, Elliot Advisors bought Barnes & Noble for $638 million on 7 June 2019, The New York Times reports. I think Barnes & Noble’s management sold out because low stock prices threaten the company’s future.
Barnes & Noble had a market cap of $492.276 million and a share price of $6.74 on 25June 2019. Such low numbers limit a company’s ability to borrow money and survive. However, a hedge fund like Elliot Advisors can provide plenty of credit without the need to kowtow to investors.
My prediction is that Bed Bath & Beyond management will have to follow Barnes & Noble’s lead and sell out at some point. Only history will show if Bed Bath & Beyond’s buyer will be another retailer or a hedge fund. However, holders of BBBY stock could make a little money by selling their shares to that buyer.