The company delivered a shockingly bad report. Not only did it miss earnings estimates by the side of a barn, coming in at 53 cents versus 66 cents that the analysts were looking for, it also reported a negative 2% comparable store sales number when the street was looking for positive numbers.
It's a truly existential crisis at this once high-growth retailer because it's got a frightful problem: the more it beefs up its online business the worse it does. Steve Temares, the chief executive officer said as they get better at online "we 're losing foot traffic and that's the lion's share of our business. So even though we've been able to sustain very healthy growth in the digital world, when the big base deteriorates, that's a big hit for us."
It gets worse. The company is offering free shipping for every purchase above $29 in order to try to compete with Amazon. But all that does is make it so if the purchase is under $29, then the customer buys it on Amazon and if it is over $29 Bed Bath gets it and the darned margins shrink because of the absorbing of the shipping costs.
So, it's a catch-22. As Temares, who admits to being frustrated throughout the call says, "We're such a better company today than we were 18 months ago or three years ago or five years ago, so you would think that would correlate with making - being more profitable." But, he says, "The competitive landscape is different and the profitability and the margins people operate under, the transparency in pricing, all these things are a reality."
I am not picking on Temares. But this new world just makes it so no matter what you do you can't seem to win against Amazon whether with the general housewares that BBBY sells or the drug store products that Harman offers.
It's a tough situation because, like Nordstrom, every store in the chain is profitable. Nordstrom is solving the problem by going private. I thought at one time Bed Bath might do so, too because it has bought back so much stock. But talk about value destruction; this company's stock hit a high of $80.82 on March 31 of 2014. At the time there were 204 million shares. Now there are only 142 million shares and the stock's at $30. As Temares says "Listen if we could have foreseen what the stock was going to be doing we would have acted differently. "
No kidding. They might as well have stuck the money in the fireplace and put a match to it for all it did for the shareholders.
So what happens here now? I think that the stock has to reflect the new world and it still reflects too much of the old world, even down here. Unless you can develop something new, something experiential, something different that can't be had online, there is an existential crisis that right now can't be solved.
Will the pendulum swing too far? It always does. But has it swung too far yet? The company's still worth $4 billion and its stock only yields 2%. One's too high and the other's too low to justify buying the stock at these prices. My advice: if you like it, shop there; it's a heck of a lot less risky than owning the stock.