Investors unimpressed by Bed Bath – Beyond’s outlook.

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On Wednesday, Bed Bath & Beyond presented a new multi-year strategy.
The company will focus on leveraging the recent momentum along with other operational improvements.
The share price fell by 20% as investors were not satisfied with the company’s offer.

Ailing retailer Bed Bath & Beyond (NASDAQ: BBBY) on Wednesday morning outlined its new strategy for “unlocking growth and increasing shareholder value”. The problem is that investors quickly rejected the presentation because the stock was trading more than 20% lower.

The plan

The strategy of Bed Bath & Beyond is solid and based on the expectation of benefiting the 37 million customers of Bed Bath & Beyond. The company expects to launch more than 10 of its own brands in key categories over the next 18 months.  The goal is to triple the market penetration of its own brands within three years.

Focusing on internal brands will also lead to procurement benefits worth $200 to $250 million over three years by reducing the number of suppliers while renegotiating terms with other suppliers.

Bed Bath & Beyond will also highlight its competitive pricing in all key categories to differentiate it from other major department stores. To achieve this goal, the company will use its data and insights to “build discipline” as it offers promotions.

The final part of the plan is for management to create a better omnichannel business that offers a compelling in-store and online experience. The recent introduction of in-store online shopping has helped convert more than 2 million customers and the company hopes to capitalize on the recent momentum.

The cost

Bed Bath & Beyond’s plan may be sound and appropriate given a period of weakness ahead of the COVID 19 pandemic. But the plan will also have costs that investors do not seem to approve of.

According to management projections, the company expects to spend $250 million to transform approximately 450 stores, another $250 million to upgrade technology and another $250 million to improve the supply chain and optimize distribution centers.

Taking into account the aforementioned savings of $200 to $250 million from improving the supplier network and $100 million from store closures, the company still has a lot of money earmarked for investment. The company has experienced some momentum recently, but many investors and analysts are not convinced that it is strong enough to last over the years.

“Although the retailer has made rapid progress in recent months from the perspective of the bancassurance channel, we believe that it is still lagging behind its competitors in terms of capabilities, which is likely to disadvantage it as the industry’s e-commerce penetration continues to accelerate,” CNBC quoted Jefferies analyst Jonathan Matuszewski ahead of Wednesday’s presentation.

Finally, in addition to the investments, Bed Bath & Beyond will allocate $675 million to share buybacks over the next three years and repay debt. The company’s Chief Executive Officer, Mark Tritton, said this reflects “the strength of our company and our financial position”, although the jury has not yet made its decision.

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