Sadly, I didn’t have the patience I counseled. I sold my position during the pandemic panic and took a loss. Those who bought my stock, based on my earlier argument, have since doubled their money.
My internal dispute was a classic Mendoza Line problem. The phrase is a tribute to Mario Mendoza, a shortstop who had an eight-year Major League Baseball career despite an average that often flirted with .200.
The Mendoza Line here is bankruptcy. Right now, shares remain stable but at a market cap only slightly above the company’s pandemic-quarter revenue of $1.3 billion. This is all thanks to the man I praised in January, Mark Tritton.
The Tritton Touch
Before taking his job with Bed, Bath & Beyond last year, Tritton was chief merchandising officer at Target (NYSE:TGT). There, he helped spearhead that company’s move into quality store brands, like the Cat & Jack clothing line for kids.
Under its first generation of leadership, Warren Eisenberg and Leonard Feinstein, the stores were standard big boxes. They offered name brand items for less through bulk purchasing and ample inventory. This stopped working late in the 2010s, mainly due to Walmart (NYSE:WMT) and Target, which could match its prices and inventory, and Amazon (NASDAQ:AMZN), which offered greater convenience.
The idea was that Tritton would replicate Target’s strategy of store brands, starting first in bedding and bath items. His first step, letting the old managers go, was expected. It led to 500 layoffs and saved $85 million.
Then came the pandemic. This closed the stores and crashed the business. Revenue fell from $3.1 billion in the February quarter to that $1.3 billion figure, for the quarter ending in May. At its bottom in early April, shares fell below $4, the market cap to $500 million.
Tritton and his board went into triage mode. He had already done a sale-and-leaseback deal on the company’s real estate. Now he suspended debt reduction, dropped the dividend and ended share repurchases. This sent shares down again, but only temporarily.
The Good News
Tritton decided to close 200 poor-performing stores in July. The hit would have been worse had he not already sold the real estate. In August he announced 2,800 layoffs, saving $150 million. He adopted a face mask requirement to keep stores open.
But he was also hiring a new team. He hired John Hartmann from True Value as chief operating officer. He grabbed Cindy Davis from L Brands (NYSE:LB) as chief brand officer. He grabbed Wade Haddad from Ann Taylor parent Ascena Group (OTCMKTS:ASNAQ) to push online sales.
In July, Tritton said sales from re-opening stores were “positive,” and estimated he could get $350-450 million from asset sales and another $500 million by reduced inventory. The stock’s march higher was underway.
The Bottom Line
Despite the rise in the stock price, BBBY remains in triage mode.
Tritton has hired Goldman Sachs (NYSE:GS) to look at the sale of assets like its Cost Plus World Market. They came back with a private equity offer for the whole company. A Bank of America analyst thinks its BuyBuy Baby baby stores may be worth more than the rest of the company combined.
Tritton is still choking up on his managerial bat, hoping to leg out some singles and keep the chain in the retailing big leagues. His main turnaround plan is still on deck.
The investment crowd, meanwhile, continues to hold its breath. BBBY stock is still dirt-cheap, the market cap barely above those terrible pandemic quarter numbers.
It’s a speculation. Place your bets.
On the date of publication, Dana Blankenhorn owned shares of AMZN and BAC.
Dana Blankenhorn has been a financial and technology journalist since 1978. 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 email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and BAC.