Since announcing Australian Mark Tritton as its new CEO in October, Bed, Bath & Beyond (NASDAQ:BBBY) stock has been on a tear.
Shares that were then at $12.50 each closed on Jan. 8 at about $16.65. That’s a 28% gain and a market cap of $2.1 billion.
Then came a quarterly report, issued Jan. 8, that was anything but scintillating. The company headlined an adjusted net loss of $38.5 million, 38 cents per share, on revenue of $2.76 billion. Compare that to a profit of $24.3 million, 18 cents per share and revenue of $3.03 billion a year before. The company also withdrew its previous guidance for 2019.
It was enough to tell overnight traders to “sell, sell, sell.” The shares dropped $1.84 each and opened for trade Jan. 9 at $14.85.
But this dip in BBBY stock could be an opportunity for investors.
Buy the Future
Investors don’t buy yesterday or even today. They buy tomorrow. They buy next year and the one after.
Tritton didn’t join BBBY from Target (NYSE:TGT), where he was chief merchandising officer, until Nov. 1. Around Christmas, he wielded the scythe, blowing out his C-Suite and promising to bring in a new team.
That’s just what investors expected when Tritton was hired. It’s his first big move.
Here’s his second. Bed, Bath & Beyond has done a sales-leaseback on its real estate, with an affiliate of Oak Street Real Estate Capital. The move generates $250 million in cash.
While that is enough to nearly pay the company’s 68 cent per share yearly dividend on 126.5 million shares for the next three years, that’s not where the money is going. (That dividend yields nearly 4% to new shareholders.)
The Tritton Plan
The Tritton plan is for Bed, Bath & Beyond to do what was done at Target, create high-quality store brands that make it the only choice for its target customer.
Bedding may be an early target. Traffic was down during 2019 because customers were going online to stores like Buffy, Wayfair or TuftandNeedle, as well as Amazon.com (NASDAQ:AMZN) and Casper, the mattress company
What sellers of the stock may not know is that Bed, Bath & Beyond still has the attention of its target demographic. Placer.ai, which measures store traffic, says the financial demographics of its customers are precisely those of Target, maybe a touch more upscale.
Placer.ai vice president of marketing Ethan Chernofsky sees opportunity. “The move to bring in Target executives and then apply a model with similarities makes so much sense,” he says. Target’s demographics are now very different from those of long-time rival Walmart (NYSE:WMT), with 24% of Target visitors now coming from households earning over $100,000, against 19% for Walmart. This has been “a key avenue Target can channel to driving growth,” online as well as offline.
It can work for Bed, Bath & Beyond as well.
The Bottom Line on BBBY Stock
The old Bed, Bath & Beyond strategy was to offer good prices on the brands its customers trusted. The new Bed, Bath & Beyond strategy is to be the brand customers look for on what they buy.
For now, each Tritton hire is going to be examined the way NFL assistant coaching hires are scrutinized on ESPN. Investors will want to look at Tritton’s hires in online, in marketing and in logistics to see if he can execute on his plans. They will closely examine the quality in each new product the company announces. Each release could be a catalyst for buying the shares, even before the results of the turnaround efforts become apparent on the bottom line.
If you believe in the strategy and want to get in, now’s the time.
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.