Has Bed, Bath Stock Gone Beyond?

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A short squeeze has nearly doubled the value of Bed, Bath & Beyond (NASDAQ:BBBY) shares over the last month. But BBBY stock is still cheap.

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The shorts were hammered by an August quarter earnings surprise. The home goods chain earned $218 million, $1.76 per share, on sales of $2.69 billion.  Revenue nearly equaled 2019 levels. Analysts had been expecting a loss.

Short volume, trades held in expectation shares would drop in value, was nearly 19% before earnings. By Oct. 5 they were down to 12%.

But it’s not too late for you to get in.

Tritton Beats Covid-19

I have been expecting a turnaround ever since CEO Mark Tritton was hired away from Target (NYSE:TGT), where he had been chief merchandising officer.

Shortly before the pandemic I even bought shares of BBY stock, praising his plan to introduce high quality store brands rather than rely on national brands. But I lost my nerve in April, even engaging in self-criticism of the call.

I should have stuck with Tritton. The new CEO had already sold real estate with leasebacks, which let him close stores fast when the crisis hit. He saw the storm coming and raised cash, as much as $400 million between February and August, while debt dropped $300 million. Tritton also reduced inventory to save money.

More important, Tritton kept building a new team. The key man may have been Wade Haddad, hired to increase online sales.

His latest move is to grab Anu Gupta, another former Target executive, as chief strategy officer. She had been chief operating officer of Jyve, an on-demand labor platform.

Ready for Better

Tritton tried to warn the shorts, telling analysts in July that same-store sales for re-opened stores were “positive.” The analysts focused instead on inventory savings and asset sales, the stock hitting a low near $8/share.

Tritton is now partnering with Shipt and Instacart on same-day delivery in urban zip codes, charging $5 on orders of $40 or more. He also hasn’t sold buybuyBABY , the company’s baby stores, although Cost Plus World Market, a gifts discounter, might still go.

One analyst who never gave up on BBBY was our own Luke Lango. He predicted the stock could triple in July, after its May quarter earnings scared people like me away. He saw an early pick-up in e-commerce sales, and a cash burn that was lower than projected. “If you back out store closures, Bed Bath & Beyond had a good quarter,” he wrote. He predicted sales would stabilize at the $10 billion range and the stock was heading toward $30.

It’s still just halfway there.

The Bottom Line on BBBY Stock

The point is a lot of people, not just me, underestimated Tritton as a financial manager and as a retailer. We saw him merely as a merchandiser, a brand creator.

BBBY’s market cap is still barely one-quarter its estimated 2020 sales. Well-run retailers usually sell for half of sales, although the best sell for a lot more. As Tritton’s plans for store brands take hold, a $5 billion market cap means you’re nearly doubling your money from here.

There remain risks. BBBY is still a brick-and-mortar retailer, mostly located in strip malls. It must compete with Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT) and Tritton’s old colleagues at Target.

I’ve said before that as an investor I bet the jockey more than the horse. I look for entrepreneurial managers who know their business. I spotted Tritton as such a jockey a year ago, and I was wrong to abandon him.

It might be time to get back on board.

On the date of publication, Dana Blankenhorn owned shares of AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn.

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