Bed Bath & Beyond's Curious Acquisition Of One Kings Lane

| About: Bed Bath (BBBY)


Downplaying the retail business of One Kings Lane.

One Kings Lane executes two rounds of layoffs and raising of capital for ongoing operations.

Are there long-term synergies still to benefit from a fire sale acquisition of One Kings Lane?

On June 14, Bed Bath & Beyond (NASDAQ:BBBY) announced the acquisition of home goods retailer One Kings Lane. Although the company did not disclose the amount it paid, it was said to be immaterial.

The purchase of One Kings Lane, Inc. did not affect Bed Bath & Beyond Inc.'s fiscal 2016 first quarter ended on May 28, 2016, as the transaction occurred during the fiscal 2016 second quarter. The purchase price was not material to Bed Bath & Beyond Inc., and the Company expects this transaction to be slightly dilutive to its net earnings per diluted share for fiscal 2016, after transaction and integration costs.

It has been offered that in 2014, One Kings Lane was reportedly valued at roughly $890 million. This was after the company raised a necessary $112 million for ongoing operations and inventory. What Bed Bath & Beyond investors need to know is that the bulk of One Kings Lane business is not the design studio business, but the e-commerce flash sale business that has been slumping for some time now. Because the e-retailer relies heavily on discount goods it has limited ability to control quantities of goods to sell to customers. This is what forced the e-commerce retailer to raise additional liquidity.

What I found very interesting in the Bed Bath & Beyond press release is that the big-box retailer made absolutely no mention of One Kings Lane's flagship operation being that of a flash sale site.

One Kings Lane works directly with home furnishings brands, vintage dealers, designers and tastemakers to offer a curated merchandise assortment. Additionally, they deliver design inspiration and expert style advice. They also offer complimentary interior design services at its two design studios located in San Francisco and New York.

It's very apparent that Bed Bath & Beyond attempted to veil One Kings Lane's business operation. It is accurate to say they work with home furnishing brands and the like, but they do so in a manner much like TJ Maxx (NYSE:TJX), Ross Stores (NASDAQ:ROST) and other discount goods sellers. Essentially they all fight over department store leftovers that didn't sell well, each trying to get enough to fill their stores/sites and sell to customers. But because this business of One Kings Lane has been declining over the last 12-15 months, it appears that the acquirer of the company desired to limit exposure of the brand in the media.

Moreover, business operations and profitability at One Kings Lane have waned so much over the last 18-24 months that the company has gone through two separate rounds of material layoffs. The most recent round of layoffs came during the holiday shopping season last year. I ballpark the total layoffs over the last 24 months to be about 35% of the workforce. Bed Bath & Beyond's CEO recognized One Kings Lane's issues in the following veiled comment.

We have followed One Kings Lane and loved its site since its inception, and we are thrilled for the opportunity to provide them with additional support and exposure to promote and grow their brand," noted Steven H. Temares, Chief Executive Officer and Member of the Board of Directors of Bed Bath & Beyond Inc.

Support is right! One Kings Lane will need a lot of monetary and inventory support in order for the e-retailer to return to growth or even stabilize the business. Where once the company was valued at nearly $1bn, taking in massive sums of investor dollars, the company is only worth a fraction of that today. Let's face facts and understand that a bigger brand and company like Gilt Group, in the same business of One Kings Lane, only fetched a buyout worth $200 million from Hudson's Bay Company. As such, I wouldn't be surprised if Bed Bath & Beyond paid less than $250 million for One Kings Lane and especially with how much trouble the former "unicorn" is in. Just because One Kings Lane was able to raise significant capital doesn't mean it can operate a long-term successful business.

I don't know how this acquisition will pan out for Bed Bath & Beyond. What I would hope for is that the acquisition was looked at in terms of vital synergies that would allow Bed Bath & Beyond to reduce competition, broaden its e-commerce reach and reduce discounting impact on profits long-term. Bed Bath & Beyond Inc. is scheduled to release its fiscal 2016 first quarter financial results after market close on Wednesday, June 22, 2016, followed by a conference call with analysts and investors at 5:00 pm (ET) that day. Maybe the company will offer additional details regarding the acquisition of One Kings Lane on the call.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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