For this segment from the Motley Fool Money podcast, it's a tale of two retailers -- one enjoying the best of times, and one having a rougher go of things. Host Chris Hill and senior Motley Fool analysts Jason Moser, Matt Argersinger, and Ron Gross start with the bad news first: Housewares specialist Bed Bath & Beyond (NASDAQ: BBBY) met its revenue targets, but a slump in same-store sales spooked investors, at least temporarily. The Fools' consensus is that this is not a stock you want in your portfolio -- but there's one possible catalyst that could help the company change course.
On the good news front, BJ's Wholesale Club (NYSE: BJ), which was taken private in 2011, returned to the public markets last week, and its shares took a healthy jump from their initial public offering price. The situation is certainly a win for the private-equity players who owned it, and who still own a majority. But again, the question for Fools is: Would you be well-advised to join them?
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A full transcript follows the video.
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This video was recorded on June 29, 2018.
Chris Hill: First quarter revenue for Bed Bath & Beyond was about what analysts were expecting, but same-store sales were negative. Shares of Bed Bath & Beyond down 10% on Thursday. Although, Jason, they do appear to have recovered from that.
Jason Moser: See, Chris, your statement right there, it's kind of like, I'm trying to find the light at the end of the tunnel. I want to be a glass-half-full guy.
Ron Gross: I don't believe you.
Moser: [laughs] When it comes to Bed Bath & Beyond, I truly can't think of one reason why you would want to own this stock. There are just so many challenges the business is facing. Top line growth is anemic, comps are down, they're still buying back shares with a net debt position. It's a very difficult space to be in these days, bricks-and-mortar retail. They've spent more than $5.5 billion on shares repurchases since 2014, and all the while, the stock price is down 75% over that same course of time. That's the George Costanza, man! That's the opposite! You don't want to be doing that!
Now, there is, potentially, a catalyst that could help the business with their new Beyond+ loyalty program. It's a membership program, you pay $29 a year, you get deals in store, free shipping on qualified items. That's reducing the amount of couponing. What remains to be seen is if this is a program that can actually gain traction, keep members, and then renew members. Does it mean you want to own the stock? I don't think so.
Matt Argersinger: Wait, if I sign up for that program, will I stop getting the 20% off blue coupons in my mail every day?
Moser: See, that's where I'm not totally clear.
Gross: You'll probably still get them, but you can throw them away.
Moser: It's like, you can't stop the mail, right? That stuff, I think, is still going to come your way. But maybe you won't have to actually go to the store and use them, you could buy online, or you could go to the store and just present your membership card.
Hill: Is the loyalty program brand new? Or has this been going on? Do you have any sense of how many people are already in it?
Moser: I do not have a sense of how many people are in it. If you look at the website, they actually still classify it as a beta program. The inception started a couple of years back. Still very new program. They're learning a lot from in.
Honestly, I think, you look at something like Restoration Hardware, they tried the same thing. It seems like it's given them another lease on life. Perhaps that'll play out for Bed Bath & Beyond that way, too. But still, a lot to be seen.
Hill: I'm glad you mentioned that because that's what I was thinking of. When Restoration Hardware announced that loyalty program, I think we all looked around the table and said, "There's no way this is actually going to work, is it?" And that's actually paid off for them.
Moser: It's paid off so far. The big question is, can it sustain those renewals? Will people continue to renew as time goes on? That's what Amazon Prime has done so well, that's what Costco has done so well. Restoration Hardware, Bed Bath & Beyond, I'm not sure they have the same place in the consumer's day-to-day shopping experience. That's the question mark.
Gross: RH also revamped their stores, the look and feel and even the merchandising of them, whereas Bed Bath is just a cluster. You walk in there -- I don't know who designed those carts that you can't even push down the aisle. The shopping experience is not perfect.
Hill: At least one bricks and mortar retail stock had a good week. BJ's Wholesale Club was taken private in 2011. It's now back as a public company and shares up 30% on the first day of trading for BJ's Wholesale. Ron, you buying?
Gross: It's like Costco, but not as big and not as good.
Moser: [laughs] I'm going to say that's a maybe?
Gross: If you want to get into the private equity game, this is a good deal: you take a company private at $2.8 billion at around 6-7 times earnings. You take $2 billion of dividends out of it while it's private, then you take it back public at a similar valuation, which is, however, now 40 times earnings, and you retain 69% of the stock. If you can get that, I say, get that.
But, as far as differentiating itself from the Costcos and the Sam's Clubs of the world, it really doesn't. It's a very similar business model, which actually is a good business model. The membership fees in this particular case amount to about 52% of the company's EBITDA. That's nice recurring revenue, nothing wrong with that.
But, it's quite small compared to the competitors. They have about five million numbers, vs. Costco, which has about 51 million members. They have about 215 clubs, where Costco has 750 clubs. So, maybe, the glass half-full, Jason over there, would say there's plenty of room for growth, but I think it's just a very competitive space.
Moser: It's very funny, the feelings that brands elicit. The only real experience I had with BJ's was back in 2005, 2006, when we were in Atlanta, and we were getting ready to go to Kazakhstan for a two-year post there. We had to bring diapers for two infants for basically two years. So, we made a week's worth of runs to BJ's Wholesale and would walk out with four boxes of diapers every day, until our garage was actually stacked to the ceiling with boxes of diapers. The neighbors were beside themselves, thinking we were running some kind of black market for diapers or something.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of AMZN. Jason Moser has no position in any of the stocks mentioned. Matthew Argersinger owns shares of AMZN. Ron Gross owns shares of AMZN. The Motley Fool owns shares of and recommends AMZN. The Motley Fool has a disclosure policy.