Bed Bath & Beyond (NASDAQ: BBBY) reported another quarter of lower-than-expected results last week, and the stock down is down nearly 10% as a result.
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In this segment from the Motley Fool Money radio show, analysts Ron Gross, Jason Moser, Simon Erickson, and David Kretzmann tackle the ongoing question of whether Bed Bath & Beyond is a value play or a value trap before covering companies that are proving resilient in the face of e-commerce growth.
A full transcript follows the video.
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This video was recorded on June 23, 2017.
Ron Gross: We begin with a weaker than expected earnings report from Bed Bath & Beyond. It sent the stock down more than 10% on Friday. Jason, I will turn to you. Was there anything good in this report that we can hang our hats on?
Jason Moser: I mean, it's good that we can sit here and have subject matter for the radio show this week, I guess. Listen. Probably the biggest question today, we had it last year and the year before, is this a value play or a value trap? I think you have to go value trap here, it seems to be playing out that way.
Gross: Six times earnings value trap?
Moser: Yeah, I think it's really difficult to identify the catalyst that actually turns this thing around. When you look at the sales numbers, sales were flat, comps were down, they still have $1 billion in net debt on the balance sheet. I will say, you want some good news, the good news, Ron, is they've done a very good job of bringing down the share count via repurchases. Since 2013, share count is down 35%. The bad news is, over that same period of time, the stock price has now been cut in half, which essentially defeats the purpose of the repurchases anyway. Going back to 2014, I noted where they had spent $171 million on share buybacks. Basically, the share is at all-time highs. So they have done essentially what you do not want to do in the repurchase game -- buying all your shares back at really high prices and then performing very poorly in the process, which has destroyed a lot of value here.
Gross: Right. So Wonder Woman is in the theaters, and we are clearly living in an Amazonian world in many respects. Simon, I will ask you, how bad is Amazon (NASDAQ: AMZN) kicking Bed Bath & Beyond? And what do you have to do to compete in the world of Amazon nowadays?
Simon Erickson: By the way, I love the pun. Amazon, very nice run. I think everything in the world is a data point right now. Amazon's acquisition of Whole Foods shows that there is no industry that's safe from being Amazon-ed. If you have more data about what people are buying and where they're buying it, you can get trends out of that and appeal to them with a customer-centric focus like Amazon's been doing. So I'm not really sure there is any industry that is Amazon-proof at this point. I will say, though, that one thing that Amazon doesn't want to do is ship a lot of low-value, high-weight stuff across the country. Maybe there are opportunities. One that I like is Tractor Supply. You don't want to be shipping a whole bunch of deer corn around the country. Amazon is obviously building out a large logistics network but still there's some place for retail to buy stuff you don't want to ship.
Gross: David, can you think of any company that would be at least somewhat Amazon-proof?
David Kretzmann: Yeah, I think you really need to look for companies that operate in a niche or a specialty that Amazon can't really easily replicate. I think Tractor Supply, like Simon mentioned, Wayfair and Etsy are a couple others that come to mind. With Etsy, you have the ultra-customizable items, personalized, stuff that isn't mass-market stuff that you see on Amazon.
Gross: Yeah, I've read a lot about TJX, the owners of TJ Maxx and Marshalls, being called Amazon-proof. I'm not sure that I buy into that, because it's going well now, but it seems like if Amazon wants to, it could get into that discount business pretty strongly. Jason, what do you think?
Moser: I think one that we always talk about is Home Depot, just because of the nature of what you're buying, you tend to have to go there to see what they have. Home Depot has done a great job of leveraging that physical network as well with the pickup in store, buy online, all that good stuff. Wayfair is one, I don't think there's any coincidence here that as Bed Bath & Beyond declines, Wayfair is on the rise. Wayfair is one that we've talked about for a long time and one that seems like it would be pretty easy pickings for Amazon. But I think that Wayfair is really keyed in on something that Amazon doesn't really do so well when you're talking about that home furnishings market. It's very clear to me that Wayfair is by far and away the superior shopping experience. So I think that's something that they've really focused on, because with Amazon, you know what you want, you go there and search for it and find it. With Wayfair, you know generally what you want, but you don't know specifically what you want. Maybe you want a couch, but you're not sure what kind, what size, so you go search for it on Wayfair, and that really helps break it down for you. And that's where Wayfair has really shined. I think that's why Wayfair's numbers are doing so well as Bed Bath & Beyond really continues to decline.
John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. David Kretzmann owns shares of Amazon, Etsy, Tractor Supply, Wayfair, and Whole Foods Market. Jason Moser owns shares of Whole Foods Market. Ron Gross owns shares of Amazon and Whole Foods Market. Simon Erickson owns shares of Amazon, The TJX Companies, and Tractor Supply. The Motley Fool owns shares of and recommends Amazon, Etsy, Wayfair, and Whole Foods Market. The Motley Fool recommends Bed Bath & Beyond, The TJX Companies, and Tractor Supply. The Motley Fool has a disclosure policy.