Bed Bath & Beyond (NASDAQ:BBBY) became a “meme” stock in January as traders inspired by Reddit’s r/WallStreetBets sent it as high as $53/share against a short position. The end of the squeeze has cut the BBBY stock price in half.
It opened March 3 at about $28/share. That’s a market cap of $3.36 billion on what should be sales of $10 billion for fiscal 2021. This assumes it hits analyst estimates of $2.63 billion in sales when it reports April 8.
For me, the meme was never the point. The point for me was the turnaround plan of CEO Mark Tritton. I’ve been boosting him since he was hired in late 2019.
The Plan for BBBY Stock
Tritton was formerly chief merchandising officer for Target (NYSE:TGT). He came in with a clear strategy.
That was to transform the chain. Instead of piling name brand merchandise to the ceiling and offering it below retail, Tritton wants a destination for consumers seeking improved living environments. It’s less like TJX’s (NYSE:TJX) HomeGoods, more like Restoration Hardware (NYSE:RH).
That will mean strong house brands arranged in a showroom atmosphere. It will mean less stock in stores, but more offered online. It will mean taking the chain upmarket with a strong identity.
Tritton is well qualified for the task. He has done time at Nordstrom (NYSE:JWN) and Nike (NYSE:NKE) as well as Target. At Target he learned how strong store brands, like Cat & Jack kids’ clothes, can become $1 billion businesses and make a store into a destination.
Before the memes, BBBY did a sale-leaseback on its real estate with Oak Street Capital, one of the private equity players that pushed for his hiring. That brought in $250 million. He blew out the old C-Suite team and brought in new people. He hired new agencies for both the brand and online efforts.
The roller coaster has been tough on investors like me. Over the last two years I’ve bought in at $15, then sold at $10.75, bought back at $19 and sold at $29. Overall, I have a small gain, but nothing like I might have if I’d kept my discipline.
But I was always willing to wait for it. Unlike the other meme stocks like Gamestop (NYSE:GME) and AMC Theaters (NYSE:AMC), there’s a viable business here with a real strategy. I don’t think the meme investors are “messing with peoples’ lives,” as Allan Sloan wrote last month. I do think they’re messing with long-term investors’ heads.
They’re also messing with what Tritton most needs, time. Tritton has an “omnichannel” strategy, where people buy their TV remotes online and come in when they want inspiration. Is it right for the times? Only time will tell.
The Bottom Line
The big risk I see isn’t Tritton. It’s the private equity players who pushed his appointment.
As companies like Oak Street have shown with investments like Kohl’s (NYSE:KSS), these guys want quick profits, not slow turnarounds. They want Tritton to buy back stock and hand out dividends. This could starve his new team of the momentum needed to finish what he started. He needs to stand up to their pressure.
If you’re buying BBBY today, be prepared to wait at least two years to see the results of Tritton’s work. It will take that long just to redesign the stores.
At the time of publication, Dana Blankenhorn owned shares, directly or indirectly, in companies mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.