This post was originally published on this site
https://content.fortune.com/wp-content/uploads/2023/01/GettyImages-1246112080.jpgIs BBBY beyond saving?
Yesterday, Bed Bath & Beyond (Nasdaq: BBBY), the home goods retailer, reported financial results for the third quarter of fiscal 2022 ending Nov. 26. Reporting was delayed by the company for additional time to complete its quarter-end close procedures.
Net sales declined 33%, compared to the same time the prior year, according to the report. Bed Bath & Beyond comparable sales declined 34%; buybuy Baby comparable sales declined in the low-twenties percent range; and revenue was $1.26 billion compared to $1.34 billion expected.
As it faced the prospect of a critical cash shortfall, the company said last week that it’s exploring options, including a Chapter 11 bankruptcy filing. Sue Gove, president and CEO of Bed Bath & Beyond, said on the earning call the company will make an additional $80-$100 million in cost reductions.
Bed Bath & Beyond, founded in 1971, and known for its 20%-off coupons, was once a darling of American retailers. But for the past few years, there’s been turbulence and tragedy at the company. Departures of top executives, dire financial straits, plans to cut its workforce by 20% and plans to close 150 “lower-producing” stores. The company released a list of closures so far. Then there’s the meme-stock mayhem and credit issues. And tragically, Bed Bath & Beyond’s CFO Gustavo Arnal died by suicide in September. Laura Crossen, the chief accounting officer, is in the role of interim CFO.
‘Winning customers back is no easy task’
Of all the company’s challenges, a glaring one is its struggle to understand its customers. Gove said in the earnings announcement on Tuesday that in the beginning of the third quarter last year, the company initiated a turnaround plan.
It’s “anchored on serving our loyal customers, following a period when our merchandise and strategy had veered away from their preferences,” Gove said. Bed Bath & Beyond “moved quickly and effectively to change the assortment and other merchandising and marketing strategies, but the inventory was constrained and we did not achieve our goals,” she said.
Gove officially became CEO in October. She was an independent director at the company until she stepped in as interim CEO in June. Gove replaced Mark Tritton as chief executive after his attempt to turn around the company by replacing name brands with private-label goods veered away from customer preferences and further spiraled sales.
“When a company stops resonating with its customers, too many competitors can jump in to steal that business,” says Jason Schloetzer, an associate professor at Georgetown’s McDonough School of Business, and a faculty affiliate at Georgetown McDonough’s Psaros Center for Financial Markets and Policy. “Winning customers back is no easy task. Unfortunately, when you combine that with the competitive nature of the home products landscape, there is no quick win.”
In a recent article on Bed Bath & Beyond’s strategic mistakes, my colleague Phil Wahba includes the replacement of name brands with private labels. “Tritton would apply his brand-building prowess—honed at Target, Nordstrom, and Nike before that—to launch 10 new brands,” Wahba writes. “His bold goal: having store brands generate 30% of sales, up from 10% at the time.” But some of Tritton’s new brands were of too low quality in relation to their price.
“The playbook from Target did not transfer to Bed Bath & Beyond, and the customer walked in and felt they weren’t providing private label products that were distinctive and at a better price,” Stacey Widlitz, president of SW Retail Advisors, told Wahba.
Meme stock mayhem
Last year, during Bed Bath & Beyond’s time as a meme stock, (when online communities of retail investors coordinated buying and selling efforts to influence stock prices), a 20-year-old USC student actually netted $110m from stock dump at exactly the right time. But the company’s gains were only short term.
“When the stock price rallied temporarily from $4 to $23 on Aug. 17, many disregarded the fundamental business performance in favor of short-term excitement,” according to a weekly market update by Ironhold Capital Management released on Tuesday. “The result was a fiasco. Since the peak of $23 on Aug. 17, the share price has fallen 94% to below $2, as investors continue to exit the stock en masse.”
The meme stock period also squandered the opportunity to gauge company leadership. “Stock prices typically offer executives an opportunity to learn how capital markets are thinking about executives’ performance,” Schloetzer says. “Those prices become less informative in the meme stock situation and less informative in the learning process.”
But some think it’s now too late for the retailer to mount a comeback. “They’re just simply not relevant anymore,” Loop Capital Managing Director Anthony Chukumba told Yahoo Finance in December. “We will not be having this same conversation a year from now about Bed Bath & Beyond. Bed Bath & Beyond will be gone.”
I asked Schloetzer his assessment. He wasn’t optimistic. “When you look at the muddling-along progress of other turnaround stories, the notion that BBBY can break out is certainly possible but more likely improbable.”
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
Big deal
A Deloitte survey finds that 68% of M&A professionals surveyed said their organizations’ deal work has led to the pursuit of some form of finance transformation, which includes digital transformation, process simplification, and automation. Just over a third of respondents said the M&A-inspired transformation takes place post-transaction. However, some initiate it during a transaction (21.9%) or pre-deal (12.9%). Due to M&A activity, respondents said their organizations’ controllership teams now use advanced technologies like analytics (21.2%), enterprise resource planning modernization (21.1%), and workflow management (15.6%), the survey found. “For many controllers, CFOs and their teams, transactions offer a long-awaited business case to kick-start controllership-centered transformation efforts,” Maria Bunch, principal at Deloitte M&A Services, said in a statement. The findings are based on a poll of more than 1,700 professionals involved in M&A for their organizations.
Going deeper
A new Gallup report, “Hybrid Work: What’s Best for Your Employees and Your Business?” explores what hybrid workers in professional services appreciate most about their work situation: improved work-life balance, efficient use of time; more autonomy, less burnout, and higher productivity. However, unclear hybrid strategies create conflict between employers and employees, Gallup finds.
Leaderboard
Jamie Miller was named global CFO at EY and CFO of the proposed new public entity. Miller’s public company experience include CFO of both Cargill and the General Electric (GE) Company. The selection of Miller is another step in EY’s process to separate the organization into audit and consulting businesses, with its consulting arm set to list on the stock market. EY is “making strong progress on the path to partner votes,” according to the company. Miller joined Cargill in June 2021 as corporate SVP and CFO. She was appointed head of corporate strategy in April 2022. Before joining Cargill, Miller served as SVP and CFO for GE. She began her tenure at GE in 2008 as VP, controller and chief accounting oficer, and went on to become GE’s chief information officer. Miller also served as president and CEO of GE Transportation. Prior to joining GE, she was SVP and controller of WellPoint (now Anthem). Miller was also a partner at PricewaterhouseCoopers.
Angela Floyd was named CFO at DPR Construction, effective Jan. 1. DPR is a general contractor and construction manager specializing in projects for advanced technology, life sciences, health care, higher education, and commercial markets. Floyd has nearly two decades of experience as a strategist providing oversight of financial services, financial reporting and analysis, tax, treasury, and internal audit functions. She joined DPR in 2017 and has worked closely with Michele Leiva, who has served as DPR’s CFO since 2010 and is planning to retire in Q1 2023. A tenured industry professional, Floyd held business roles at Balfour Beatty Construction, including VP of business improvement and director, before joining DPR.
Overheard
“We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus.”
—Wells Fargo CEO of Consumer Lending Kleber Santos said in a statement on Tuesday. In this macroenvironment, Wells Fargo, one of the biggest mortgage-lending banks, is reducing the size of its servicing portfolio and will focus more on home loans for its existing customers in bank and wealth management and individuals and families in minority communities.
