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Bed Bath & Beyond: Short On Clarity, Long On Opportunity

Oyat profile picture


  • Bed Bath & Beyond's net margin has likely bottomed and guidance above current levels could send the stock upward.
  • The company's sales trajectory should be flat to positive over the long term due to its successful and rapidly growing online business.
  • One main reason for the attractive valuation is the lack of clarity/communication from management.
  • Considering the attractive financial metrics/valuation and lack of clarity, a transformational transaction is certainly possible.

Bed Bath & Beyond (BBBY) is a retail stock investors should consider despite the company's recent profitability compression and poor results.

The company is still nicely profitable despite all of its recent challenges from Amazon (AMZN) eating up market share to foot traffic declines in its brick and mortar business. Much of the recent margin pressure is due to management investing for the long term success of the company while ignoring the short term impact on profitability to some extent. Without a capital markets day, company road shows or even clear strategy discussions on results calls, investors are left largely in the dark in terms of where the company's current strategy is meant to lead in terms of margins, growth or number of store locations. While clearly a challenge, the lack of clarity can also be viewed as an opportunity as it potentially pushes the stock price down despite the underlying business being well positioned for the long term. In the meantime, the attractive valuation offers investors some protection on the downside while the company works through its challenges.

Purpose of this article

We published an article on Bed Bath & Beyond in September of 2017 which reviewed possible top and bottom line outcomes for the company. This article will offer a quick update of our projections and investment thesis from that piece as well as a discussion regarding management's communication style and its potential impact on the investment case. We will also incorporate some key items for the upcoming quarterly/yearly results (scheduled for April 11th) such as tax changes, potential transformative transactions and the earnings trajectory.

An update on the top line

In September of 2017, we offered an analysis of the company's revenue trajectory and the mix between brick and mortar versus online sales. We offered a base case demonstrating

This article was written by

Oyat profile picture
Oyat (www.oyat.com) is a Swiss-based family office focused on managing our own capital, as well as helping other families and individuals meet their financial goals.Our principal goal is the long-term preservation and appreciation of capital in real terms. We are active across asset classes, including private and public equities, fixed income securities, real estate, precious metals, as well as alternative investments. Our background and specialization is in global equities. Our investment process focuses on owning competitively-advantaged companies at reasonable prices.We also like to engage with the Seeking Alpha community to hear other viewpoints and share our opinions.

Analyst’s Disclosure: I am/we are long BBBY. 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.

The information enclosed in this article is deemed to be accurate and reliable, but is not guaranteed to or by the author. This article does not constitute investment advice.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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