Bad Guidance Sinks Bed Bath & Beyond

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In this segment from the MarketFoolery podcast, host Chris Hill and senior advisor Bill Mann discuss Bed Bath & Beyond's (NASDAQ: BBBY) fourth-quarter earnings report. Comparable-store sales fell 0.6%, and the retailer predicted it would not return to earnings growth until 2020. The Fools believe Bed Bath & Beyond's future looks uncertain.

A full transcript follows the video.

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This video was recorded on April 12, 2018.

Chris Hill: Let's start with Bed Bath & Beyond, which is having a 20% off sale on its stock. Fourth quarter report came out, Bed Bath & Beyond's same-store sales were not good. Their guidance for the fiscal year that they are just beginning was anything but encouraging. And in terms of the stock, this is the worst single day shareholders have ever had for Bed Bath & Beyond.

Bill Mann: I think I've always disliked Bed Bath & Beyond a little bit simply because of the grammatical mistake in its name. I'm always like, there should be a comma. Bed, Bath & Beyond. But maybe that's not fair.

Hill: That may be picking a nit.

Mann: [laughs] Be that as it may, the stock seems to have responded to my annoyance. This, to me, is a dead company walking. Right? If you look at what Bed Bath & Beyond is doing, they have gone from 8% same-store sales growth to negative same-store sales growth. They have 1,500 stores, and that's from 2010 to today. In the same amount of time, their capital expenditures have doubled. They are trying to do anything. They've got a membership program that they've launched. I don't know how effective that is. They're trying to move into the value and the treasure hunt segment à la what happens at Ross and TJ Maxx. As you know, those two companies are pretty good at that. I literally don't know what this company is going to do other than slide off into the sunset.

Hill: That's a little surprising to me, only because of how many locations they have, this is still a $2.5 billion company. With the drop today, the stock is still trading north of $17 a share. And it sounds like you're saying, no, this thing is, if not going to zero, it's certainly going lower.

Mann: I think the best outcome for shareholders is if this company gets taken out by private equity that's going to try and do some kind of turnaround. I just don't see how it's going to succeed. One of the big things they've talked about is, we're going to make sure that our products are differentiated. They're not. I mean, I get the treasure hunt. I think that's a reasonable place for them to go. But they are literally going from a challenging market to a different challenging market. This is being done. And when you're moving into a market where the biggest players are Target and Walmart, let's not even mention Amazon, that's hard. That's really hard.

Hill: And the thing is, this is a business that could, in theory, work. They are selling things that people need. This is not some niche retailer or niche product. This isn't Dave & Buster's. And not to pick on Dave & Buster's, but that's a fun thing that you can go do, you don't need to go to Dave & Busters.

Mann: You speak for yourself, pal.

Hill: I don't need to go to Dave & Buster's, but every once in a while, I'm going to need some new tiles, I'm going to need some new bedding, like everyone else. So, again, they sell stuff that people need.

Mann: Right. But they have lived for years. I'll tell you who this company reminds me of right now, and it's JCPenney. JCPenney, five years ago, Ron Johnson came in and the first thing he said was, "We're going to get rid of all of the coupons and all of the discounting that we've done in the past." They basically turned their back on their best customers. Bed Bath & Beyond, in order to generate margins, kind of has to do the same thing. They get so much of their revenues on these ubiquitous 20% off coupons that you almost can't avoid. Every time you open your mail, there seems to be another 20% discount coupon from them.

I just feel like they are, at best, spending a lot of money to run in place. It gives me no joy to say all this, by the way. Besides the comma issue, I don't dislike Bed Bath & Beyond. It's a fine experience. It's just, they seem to me to be panicking.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Bill Mann has no position in any of the stocks mentioned. Chris Hill owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Dave & Buster's Entertainment and The TJX Companies. The Motley Fool has a disclosure policy.