Below is a brief excerpt from a complimentary research note written by our Retail analysts Brian McGough and Jeremy McClean. If you are an institutional investor interested in accessing our research email

$BBBY | Blood Bath & Beyond - 7 9 2020 10 02 33 AM

It’s gotta be a challenge to manage a large retailer through a crisis like a pandemic when pretty much the entire management team is brand new.

Analyst Q/A featured some Qs on liquidity and cash burn, which, with the current business trends, shouldn’t be a problem, but could be if we head into an environment of net closing of retail. 

Bed Bath & Beyond's (BBBY) next bond maturity is 2024. In the quarter (Ended May 30) total sales were down 49%. Sales from digital increased 82%, while net sales from our stores declined about 77%.

Gross margin decreased 780 basis points to 26.7%, with management citing the main driver as being unfavorable impacts by channel and product mix related to the substantial shift in sales to digital channels.

The company put BOPIS and curbside pickup in place in the Q with 60% of locations offering it by late May. 25% of the store fleet was ‘converted’ to regional fulfillment centers, nearly doubling fulfillment capacity. 

That makes it sound like BBBY is significantly under-invested for the ecommerce future. Today nearly all of the stores are open to the public, and as for recent trends, the company noted that June saw total sales down 7%, ecomm was up 80% and stores comping down about 25%. 

That channel shift will remain very bearish for margins YY in the upcoming Q. BBBY also announced that it plans to close 200 stores and execute other expense reductions.  The total benefit is expected to be between $250mm and $350mm.

Though the company also expected to put some of that into investments in its digital business. The one thing that stands out to us as bearish for BBBY is that this category has been one of the best in retail throughout the Covid crisis as people invest in their home accommodations and city dwellers look to move out into larger properties in the ‘burbs spending more on home goods.

For June sales to still be down, means the company is ceding significant share to competitors, something that is not new for the Bed Bath business model as its been losing share at rapid rates over roughly the last 5 or 6 years.

We don’t think this ship can be turned around before the equity value dries up.