Bed Bath & Beyond shares soar after restructuring, but it might mean trouble for the holiday season

Bed Bath & Beyond Inc. stock is soaring following news that six senior leaders are leaving the company, but UBS analysts say the timing of all this change might suggest that the holidays aren’t going to be as jolly as the home goods retailer would’ve liked.

Bed Bath & Beyond BBBY, +5.04%  shares have rallied 27.1% over the past month, 15.8% for the week so far, and rose 5% in Wednesday trading. The S&P 500 index SPX, -0.04%  is up 2.4% for the past month.

The company announced Tuesday that the chief merchandising officer, chief marketing officer, chief digital officer, chief legal officer, chief brand officer and chief administrative officer are all out. Bed Bath & Beyond has a new chief executive, Mark Tritton, the former chief merchandising officer for Target Corp. TGT, -0.23% . He stepped into the role in November.

“Change begets change in these situations,” wrote UBS analysts led by Michael Lasser, saying UBS isn’t surprised by the announcement. However, with the holiday season wrapping up and third-quarter earnings scheduled for release on Jan. 8, the timing is suspicious.

The FactSet consensus is for earnings per share of 2 cents, down from 18 cents last year; revenue of $2.85 billion, down from $3.03 billion in 2018; and a same-store sales decline of 4.7%.

“It’s indicates that trends likely haven’t improved much,” the note said. “We believe the new CEO probably wants to show that decisive actions are being made ahead of the new year. Also, the company’s leadership will be able to point to pivotal steps it is taking when it has an initial opportunity to interact with the investment community in January.”

UBS thinks the roles could take months to fill, though Tritton has experience in a number of the vacant spots. But Bed Bath & Beyond’s problems run deeper than assortment.

“It’s also notable that no changes were made in areas like supply chain, store operations and IT infrastructure,” UBS said. “These are key functions that need to be addressed as well.”

UBS rates Bed Bath & Beyond stock neutral, with an $11 price target.

Also: Home Depot’s investments may weigh on near-term results but analysts see the long-term benefit

Wedbush analysts led by Seth Basham attribute the stock boost to the potential that Tritton brings with him to Bed Bath & Beyond. They’re waiting for the “initial vision,” which should come during the earnings announcement and could include some big cost savings.

“We would not be surprised to hear Mr. Tritton point to hundreds of millions of dollars of cost savings opportunities in SG&A and COGS [cost of goods sold] (likely partially offset by some necessary investments), but as importantly we will focus on his ideas for reinvigorating traffic in stores,” Wedbush said.

Basham and his team are upbeat about what the third quarter holds, with analysts forecasting improvements based on creative holiday marketing, store revamps and other developments. However, they say growth in the first half of the year might fall short of Wedbush’s initial expectations.

Wedbush rates Bed Bath & Beyond shares outperform, with an $18 price target, up from $16.

Source: Read Full Article