Investors unimpressed with Bed Bath & Beyond’s outlook

Struggling retailer Bed Bath & Beyond (NASDAQ: BBBY) detailed Wednesday morning its new strategy to “unlock growth and drive significant shareholder value.” The problem is investors swiftly rejected the presentation as the stock traded lower by more than 20%.

The plan

Bed Bath & Beyond’s strategy is sound and based on expectations of leveraging its 37 million customers. The company expects to launch more than 10 of its own brands in key categories over the next 18 months.  The objective is to triple its penetration of owned brands over a three year period.

A focus on internal brands will also result in $200 million to $250 million worth of sourcing benefits over three years by reducing the number of suppliers while renegotiation terms with other vendors.

Bed Bath & Beyond will also emphasize its competitive pricing across key categories to differentiate itself from other large department stores. To help with this objective, the company will leverage its data and insights to “build discipline” in how it offers promotions.

The final part of the plan consists of management creating a better omnichannel business that offers a compelling in-store and online experience. The recent launch of the buy-online-pickup in-store helped convert more than 2 million customers and the company hopes to leverage recent momentum.

The cost

Bed Bath & Beyond’s plan may be sound and appropriate given a period of weakness that predates the COVID-19 pandemic. But the plan will also come at a cost that investors appear not to approve of.

According to management’s outlook, the company expects to spend $250 million to remodel around 450 stores, another $250 million on technology modernization, and another $250 million on supply chain improvements and optimizing its distribution centers.

Factoring in the aforementioned $200 to $250 million in savings from improving its network of suppliers and $100 million in savings from store closures, the company still has a lot of cash earmarked for investments. The company has seen some recent momentum but many investors and analysts aren’t convinced it is strong enough to sustain over the years.

“While the retailer has made quick progress during the past few months from an omnichannel perspective, we believe they still lag peers in capabilities, which should disadvantage them as industry e-commerce penetration accelerates,” CNBC quoted Jefferies analyst Jonathan Matuszewski as saying ahead of Wednesday’s presentation.

Finally, in addition to the investments, Bed Bath & Beyond will allocate $675 million towards share buybacks over the next three years and pay down debt. While company CEO Mark Tritton said this reflects the “strength of our business and financial position” although the jury is still out.