Why Bed, Bath & Beyond Stock Is a Buy

Stock Market

Bed Bath & Beyond (NASDAQ:BBBY) has let go its CEO amid a stock and sales collapse. Yet insiders are buying the stock.

Mark Tritton was replaced by board member Sue Gove, just before the company reported a huge loss on declining sales in late June. New accounting officers were appointed as the board searched for a way out of the mess Tritton left.

Ticker Company Recent Price
BBBY Bed, Bath & Beyond $5.08

Yet insiders are still buying the stock, based on three magic words.

Buy Bye Baby

Tritton’s plan was to sell peripheral chains and transform stores from an old, 1980s Walmart (NYSE:WMT) into something more like Restoration Hardware (NYSE:RH).

It was based on what Tritton did as chief merchandising officer at Target (NYSE:TGT) during the 2010s. Instead of stacking off-price, name brand offerings to the ceiling, he would curate a collection of products built around high-quality store brands. (Full disclosure. I nibbled on BBBY twice during the Tritton years, and came out about even.)

It might have worked, except the world refused to sit still. First, the pandemic closed stores and crushed sales. Then the reopening snarled supply chains so stores couldn’t meet new demand. Finally, inflation increased costs to the Moon.

That’s when Ryan Cohen, the “supergenius” behind the Gamestop (NYSE:GME) meme trade, jumped in. He put $150 million into buying about 10% of the stock, then told the board to sell its real estate and other key assets for cash, like the Buy Buy Baby chain, which sells baby products.

At the time BBBY stock was trading at about $15/share. It recently traded around $5.

Break It Up

Insiders are buying because Cohen’s plan might work.

Buy Buy Baby sales declined only by single digits in the May quarter report. This was consistent with market trends. Back when Cohen entered the fray, the value of the baby goods chain was estimated at $1.1 billion. The current market cap of BBBY is $357 million. Add in the company’s real estate, which could be sold and then leased-back to raise more cash, and it’s time to listen to your junk man.

This makes BBBY stock a buy, assuming the board can execute on Cohen’s plan. BBBY still had positive operating cash flow in the May quarter. Assets were estimated at nearly $5 billion at the end of May.

There are risks.

While battling Cohen, Tritton wasted $500 million on stock buybacks, and we don’t know what the new accountants will find under the bed or in the beyond. Bank of America (NYSE:BAC) analysts describe stores without air conditioning, orders that aren’t being fulfilled, and sales that could drop another 20% this quarter. But that would leave $1.15 billion of revenue.

That may be why Gove said she is putting some of her own money into the stock. It’s not much, just $230,000, but Gove has been working with retailers for decades, as an operator and then a consultant.

The Bottom Line on BBBY Stock

Today’s BBBY stock is not for the timid. The company may not survive the year. Gove will first have to staunch the bleeding, then see what value she can wring out of what remains.

But speculators can now hope for something better than what the company has. Even broken up and sold for parts, BBBY is worth more than its present market cap. Sell the land, sell the baby stores, sell the inventory at half off and you should still be able to cover the $2.7 billion in long-term debt with a lot more than $400 million left over.

Cohen had the right idea. He just took the wrong approach, coming in hot when Tritton still had board support. He won’t be made whole in the breakup, but new money might be.

On the date of publication, Dana Blankenhorn held long positions in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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 [email protected], tweet him at @danablankenhorn, or subscribe to his Substack.

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