Bed Bath & Beyond plans to take an ax to its already-diminished store fleet, shutting roughly 150 underperforming stores to cut its real estate footprint as part of a dramatic turnaround plan.
The Union, New Jersey-based company on Wednesday detailed the steps it is taking — including laying off 20% of its corporate and supply chain workforce, securing $500 million in much-needed financing and undertaking a management restructuring — as it attempts a comeback after a series of missteps.
In an unusual non-earnings update, interim CEO Sue Gove on a conference call also told Wall Street analysts that Bed Bath & Beyond had decided not to sell its Buy Buy Baby stores. And it is slashing its capital expenditures to $250 million from an original $400 million this fiscal year, pausing store remodelings. Bed Bath & Beyond declined to comment on exactly how many employees will get pink slips.
The company has been in a tailspin the past six months, burning through cash as sales declined. Former CEO Mark Tritton's plan to pivot the retailer's banner chain away from national brands to private-label merchandise failed, and the company is now abandoning that strategy to refocus on national names such as Ugg and KitchenAid.
The retailer's supply chain woes last year during the holidays cost it $175 million in sales because of a lack of inventory. Currently, some Bed Bath & Beyond suppliers are demanding advance payment or setting more stringent payment terms, adding to its woes. And its stock price has plummeted in the wake of Chewy.com co-founder and billionaire Ryan Cohen selling his 10% stake in it earlier this month.
At least one retail analyst expressed skepticism about whether Bed Bath & Beyond's plan to scrub or reduce inventory of many of the private-label products it launched — to try to regain its dominance as a home-goods destination — will be enough to win back shoppers.
"The truth is, Bed Bath & Beyond has never had a leading market position and it is unlikely to ever do so as there are many other players with much bigger market shares in home," Neil Saunders, managing director at GlobalData, said in a note. "What Bed Bath & Beyond needs to find is a niche that it can occupy and succeed in — much like Container Store has done. From today’s call it is not clear that this niche has been found, which is why the plans are somewhat generic and lack oomph or wow factor."
Assessing Leases, Portfolio
On Wednesday, Bed Bath & Beyond, in addition to identifying and already starting to close its "lower-producing" stores, said it "continues to evaluate its portfolio and leases, in addition to staffing, to ensure alignment with customer demand and go-forward strategy." An investor presentation also said there will be staff cuts related to the store closings.
Bed Bath & Beyond is "working on the cadence" of the roughly 150 planned store closings, but there will be 50 to 60 as part of the first wave of shutdowns this year, according to Chief Financial Officer Gustavo Arnal.
"We're not sharing specific economics of those stores at this time, nor locations," he said on the call.
Bed Bath & Beyond now has over 700 namesake retail locations. The retailer had already been in the process of lowering its store count and unloading some properties.
In December 2019, Bed Bath & Beyond sold roughly half its real estate portfolio, some 2.1 million square feet that included its New Jersey headquarters and some stores, to Chicago-based Oak Street Real Estate Capital in a sale-leaseback deal for $267.3 million, according to CoStar data. The retailer has also been closing stores for several years now in an attempt to rightsize its fleet. In January, as part of its previously announced downsizing, Bed Bath & Beyond said it was on track to have 200 planned store closures completed by the end of fiscal 2021, with more possible in 2022.
Bill Read, executive vice president at Retail Specialists, compiled a 13-page list of Bed Bath & Beyond stores that he posted on LinkedIn on Wednesday.
"When you look at the list of existing locations, you will notice that they have a ton of really good real estate," Read wrote. "But like Daniel Hurwitz [CEO of Raider Hill Advisors] always said, 'Good real estate can't save a poor merchant.'"
Read told CoStar News he doesn't know how well the retailer will do trying to exit leases or win any possible concessions.
"I think landlords are tired of being beat up by Bed Bath & Beyond," Read said. The company didn't immediately reply when asked if it wanted to respond to Read's comment.
And like Saunders, he questioned the strategy of returning to focusing on name brands in the face of rivals like Target.
"I don't know if there's a magic bullet for them [competing] on a commodity basis," Read said.
Large US Leasing Footprint
The retailer leases "substantially all of their existing stores," Svec said, citing CoStar data. The Bed Bath & Beyond chain in the United States occupies 20.7 million square feet at an average of 31,140 square feet per store, according to Svec.
The company is still searching for a new CEO as it tries to navigate out of rocky waters. Tritton was ousted in June, temporarily replaced by Gove.
"It is unusual for an interim CEO to set out a major strategic update ahead of the appointment of new leadership, however the urgency of Bed Bath & Beyond’s dire position necessitated immediate action," Saunders said. " We applaud Sue Gove for taking it."
To improve its liquidity, Bed Bath & Beyond said it has secured commitments for more than $500 million of new financing, including a newly expanded $1.13 billion asset-backed revolving credit facility and a new $375 million "first-in-last-out" facility. In addition, Bed Bath & Beyond has filed with the Securities and Exchange Commission for the potential launch of an at-the-market offering program for up to 12 million shares of common stock.
The company said it expects net sales of roughly $1.45 billion for the fiscal second quarter, which ended Aug. 27, with a comparable sales decline of about 26% compared to the prior-year period. Bed Bath & Beyond will report its second-quarter results on Sept. 29.
The retailer had been exploring whether to divest Buy Buy Baby, which sells clothing, strollers and other items for infants and young children. Under Tritton's watch, Bed Bath & Beyond sold several noncore retail chains, including Cost Plus World Market and Christmas Tree Shop. But the parent company has now decided to keep Buy Buy Baby, according to Gove.
"Our board and strategy committee have determined that [Buy Buy] Baby's future growth and value can best be accelerated as part of our portfolio at this time," she said.
The uncertain economy and rising interest rates have created a difficult environment for retail real estate sales to get done. Department store chain Kohl's proposed sale to The Franchise Group, for example, fell through in July.
Management Shake-Up
Sirhal most recently served as executive vice president and chief merchandising officer for the Bed Bath & Beyond chain. Wu has served as the senior vice president and general manager of Buy Buy Baby since joining the company in January 2021.
In conjunction with those changes, Bed Bath & Beyond has eliminated the chief operating officer and chief stores officer positions, so John Hartmann and Gregg Melnick will be exiting the company.
Saunders said he thinks Bed Bath & Beyond has a tough road ahead.
We do not see the external environment easing any time soon, so Bed Bath & Beyond is reinventing itself at the worst possible time," he said. "Indeed, the preliminary second quarter results — with a catastrophic sales decline of 26% — underline the extent of the problem. A selective couponing strategy may help to drive footfall, but it is, at best, a partial solution. ... Overall, we are clearer about what Bed Bath & Beyond wants to achieve but we are not necessarily more confident that the group can succeed in its ambitions."
For the Record
JPMorgan Chase is leading the refinancing of the asset-backed facility, while Sixth Street Partners is serving as the lender and agent for the revolving credit.