For many football fans, Black Monday is the most wonderful time of the year.
That’s the morning, right after the NFL season is over, where coaches (and their staffs) get fired. For fans of failing teams, it’s a time of hope, which is otherwise in very short supply. Overall, it is time worth celebrating.
Black Monday came early for Bed Bath & Beyond (NASDAQ:BBBY), and investors acted like Atlanta Falcon fans. New coach Mark Tritton’s decision to clear out his C-Suite sent the shares rocketing up 17% in just two days of trading.
Shares in the New Jersey-based home furnishings retailer opened Dec. 19 at $17.66 each. That’s a market capitalization of $2.5 billion for a retailer that will easily exceed $11 billion in sales this year.
The Tritton Plan
Tritton’s job at Target was chief merchandising officer, a sort of offensive coordinator. At Target he launched over 30 proprietary brands. Before that he worked at Nordstrom (NYSE:JWN), which is known for personalized service, at privately held Timberland and at Nike (NYSE:NKE).
His next job is to recruit a team who can do for Bed Bath & Beyond what he did for Target. Until now, BBBY was probably best-known for its role in the Adam Sandler movie Click. There, a remote control made Sandler’s sad life zoom past him, until he realized it’s the day-to-day routine that makes life worth living.
It’s the day-to-day routine that Tritton needs to fix. BBBY is getting killed in bedding and housewares by Target and Walmart (NYSE:WMT). It’s not only losing to Amazon (NASDAQ:AMZN) online, but to niche merchants like Buffy, Sheex and Casper. The company’s products are seen as average, not just in bedding, but in bath products and kitchen appliances as well. There is no reason you must go to its stores.
The turmoil that took out BBBY co-founders Warren Eisenberg and Len Feinstein, and then CEO Steven Temares, was spurred by an alliance of hedge funds. They took 5% of the stock, then won an agreement for control in May.
The stock continued to fall until mid-August. Since then it has more than doubled. It’s too late to save the store’s Christmas. The hope is that Tritton can make a profit in 2020, something the company hasn’t seen in two years.
As recently as 2016, BBBY was able to bring 7% of revenue to the bottom line, on $12 billion in sales. It still had almost $1 billion in cash on hand at the end of August, and just $1.5 billion in long-term debt. The company still has positive operating cash flow, although that’s been cut in half over the last two years.
The Bottom Line on Bed Bath and Beyond Stock
Bed Bath & Beyond was one of the original “category killer” stores of the 1980s and 1990s. Its stores are mostly located in out-parcels near the discount retailers (like Target) that have taken over the market.
It should be salvageable. If Tritton’s new team can create some excitement in key categories, and launch high-quality private label merchandise, a turnaround is very possible. This isn’t J. C. Penney (NYSE:JCP).
A speculative bet may be just the thing to goose a younger investor’s portfolio in 2020. Even with its recent run-up, you’re paying less than one-fourth revenue. Get it up to one-half revenue, a successful retailer’s multiple, and you’ve doubled your money.
Dana Blankenhorn is a financial and technology journalist. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.