‘Stick a fork in them’: Bed Bath & Beyond’s recovery hopes fade

Mark Tritton was supposed to be the savior for Bed Bath & Beyond Inc. — a hotshot executive from Target Corp. who knew how to charm customers with in-house brands and train stores on handling online and in-person orders.

But the chief executive, who took over in November 2019, never saw the fruits of his labor, and the home-goods retailer watched its sales melt away during the pandemic even as customers snapped up the same wares at nimbler competitors. One last dismal quarterly report was all it took, and Tritton was unceremoniously dumped Wednesday.

Behind the scenes, activist shareholder Ryan Cohen, whose Reddit fans had followed him into the stock, had grown fed up with Tritton’s performance and pushed the board to fire him, according to a person familiar with Cohen’s thinking. Cohen continues to believe the better-performing Buybuy Baby unit is a great asset and sees Tritton’s departure as a chance to undo a series of missteps over the last three years. The challenge, with the stock down 80% in the last 12 months and bond yields rising, is persuading other investors that Bed Bath & Beyond still has time to recover.

“They’re done. I mean, stick a fork in them,” said Anthony Chukumba, managing director at Loop Capital Markets, which has a sell rating on Bed Bath & Beyond shares.

Cohen’s RC Ventures is Bed Bath & Beyond’s fourth-largest holder, with a 9.7% stake as of Feb. 24, according to data compiled by Bloomberg.

Sue Gove, a board member who was appointed interim CEO to replace Tritton, told analysts on an earnings call that the company is aware of interest in the baby-products business and continues to evaluate its options.

Cohen’s role

The person familiar with Cohen’s thinking said he believes the company needs to narrow its focus, reduce spending and get back to catering to customers’ core demands and focus on national brands — rather than pushing expensive private labels. Cohen thinks Tritton was the wrong CEO with the wrong strategy, the person said.

In a tweet Wednesday, Cohen criticized executives who make too much money, something that he previously had lamented about Tritton’s arrangement.

Tritton, now 58, was a superstar at Target when Bed Bath & Beyond hired him in late 2019 after settling with a trio of activist investors who criticized it for failing to adapt quickly to online shopping. He had been the architect of Target developing more than 30 new private brands in areas such as apparel and home decor, which seemed to fit well with Bed Bath & Beyond’s goal of taking back market share from the likes of Amazon.com Inc., Wayfair Inc. and TJX Cos.’ HomeGoods.

His task was straightforward: reverse a deep sales slump. But despite the pandemic driving a surge in demand for spruced-up living spaces, Bed Bath & Beyond has reported declining year-over-year sales in every quarter but one since the end of 2018. Profitability has also suffered. Analysts didn’t foresee two of the last three quarterly losses, and the most recent one was twice as steep as they had expected.

Long odds

The odds are even longer now as Bed Bath & Beyond attempts to return to profitability while contending with rapidly changing consumer habits and the highest U.S. inflation in 40 years.

Like other retailers, Bed Bath & Beyond is also suffering from a glut of unwanted stuff. Most of that is private-label products, executives said on the earnings call. The company will need to mark down items to clear out excess inventory, which will put pressure on profit margins.

Under Tritton’s leadership, Bed Bath & Beyond cleaned up aisles, but it also scaled back discounts, a move that may have deterred foot traffic, Morningstar analyst Jaime Katz.

“Cleaning up the store to make the selection process easier for consumers was great, but now you have to stay ahead of companies like Wayfair on digital channels,” said Katz, who has a buy rating on the shares.

Making matters worse, Bed Bath & Beyond weakened its once-strong balance sheet with a $1-billion accelerated share-buyback program, even as the foundations of its business operations were crumbling, Loop Capital’s Chukumba said.

“If you’re struggling and you’re trying to turn the business around, you’ve got to pull back as much as you possibly can. You want to preserve liquidity,” he said. “They did the exact opposite.”

The company had $108 million in cash and equivalents at the end of May. Its total liquidity, including availability under its revolving credit facility, was about $900 million.

The board said it hired Berkeley Research Group, a retail advisory firm, to focus on cash, inventory and balance sheet optimization. The company also tapped search firm Russell Reynolds to help find its next CEO.

Katz said it’s going to be tough to recruit someone in light of the company’s floundering performance.

“Who’s going to want to run this?”