In this segment from the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio's Jason Moser, Total Income's Ron Gross, and Motley Fool Pro and Options' Jeff Fischer look at another retailer that has failed spectacularly to adapt to the changing environment: Bed Bath & Beyond (NASDAQ: BBBY). But ignoring the company's sloth in the online space, the financial moves management has been making over the past several years have burned a ton of shareholder capital to no result.
A full transcript follows the video.
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This video was recorded on Sept. 22, 2017.
Chris Hill: Shareholders of Bed Bath & Beyond needed a hot bath and a long nap after third-quarter results sent the stock down more than 22% this week. Amazing, Jason, that we're still talking about a company worth $5.5 billion.
Jason Moser: That's in the face of a challenging retail environment, right?
Ron Gross: [laughs] That's what they say.
Moser: Listen, these guys are the worst.
Hill: [laughs] Don't sugarcoat it.
Moser: If you go back to 2013, look at this, they funded $6 billion in share repurchases. They've levered their balance sheet to $1 billion in net debt. And since then, the stock has fallen from highs around $80 to what we see today around $20. So all along the way, they're just burning shareholder capital. It seems they have no regard for it. The stock is trading now around 6 times trailing earnings. It's trading at that level for a reason. They talked about on the call, these initiatives, in order to bring things back around, like margin-enhancement initiatives and inventory optimization and supply-chain initiatives. It's a good reminder that talk is cheap and these guys were really slow to adapt to a changing retail space.
And I just don't think they necessarily offer that great of a value proposition anymore, particularly when you have Amazon, there is Wayfair out there, and we've always been a bit skeptical of their strategy of marketing via coupon. Like you expect the discount before you even go into the store. Probably some upside to the stock from today's level. But I just feel like there are easier ways to make money. So I would steer clear.
Hill: Let me turn to the value guy in the room. Ron, you look at the stock, where it is, and certainly after a drop like that -- anytime there's a drop, I don't care what the company is, anytime there's a 20% drop, you know there are investors looking at it and thinking, "Maybe it's on sale."
Gross: Perhaps. As we discussed earlier, retail, specialty retail, is littered with the corpses of bankrupt companies, and you have to be really careful. They don't own real estate. They don't have a competitive advantage to speak of. They do have somewhat of a brand name, but that's not enough in today's day and age. So I would stay away.
Chris Hill owns shares of Amazon. Jason Moser has no position in any of the stocks mentioned. Ron Gross owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Wayfair. The Motley Fool has a disclosure policy.