The home-goods retailer is scheduled to report results for the quarter through Feb. 26 on Wednesday, with BofA saying the company's comparable sales growth outlook of down high-single digits implies sales down approximately 10% on a three-year basis. Overall, the home-furnishing industry's sales growth is projected at positive-23% over the three-year period, the firm said, citing the US Census.
According to BofA, Bed Bath had already been losing market share for the past few years as consumers consolidated purchases at Amazon.com (AMZN) and other mass retailers, but the losses picked up pace following a turnaround strategy that included coupon reductions and private label expansion, leading to a loss of core customers.
BofA Analyst Jason Haas said in a note that the retailer's balance sheet has also "materially worsened" after its $1 billion share- repurchase program, making the completion of its turnaround strategy "more difficult." The company could unveil a new buyback program with earnings, but could find it hard to complete it with less cash on the balance sheet and BofA's expectation for negative free cash flow over the next several years, he added.
Bed Bath recently struck a deal with investor and Chewy (CHWY) co-founder Ryan Cohen to appoint three new board members, with Haas saying Cohen's involvement has disconnected the retailer's stock from its fair value.
Cohen, who had disclosed a stake in Bed Bath through RC Ventures in March, believes that a potential sale of Bed Bath's Buybuy Baby business could be worth "several" billion dollars, while BofA said it values the business at "just over" $500 million.
For 2022, the company has lowered its capital expenditure outlook to $350 million from $400 million, and has only opened one Buybuy Baby store as of the third quarter versus its plans to launch 50 stores from 2021 to 2023, according to the note.
"[Bed Bath's] turnaround could work, but will take many years in our view, and activist investor, RC Ventures, who recently obtained three board seats is already advocating for a strategic change," Haas said.
BofA kept it rating on the Bed Bath stock unchanged at underperform with a $9.50 price objective.
Price: 18.04, Change: -1.23, Percent Change: -6.38
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