Activist Investors Respond To Bed Bath & Beyond Q4 Net Loss

For the fourth quarter ended March 2, and under pressure from activists to make board of directors and other changes, Bed Bath & Beyond posted a net loss of $253.8 million, or $1.92 per diluted share, versus earnings of $194 million, or $1.41 per diluted share, in the period a year prior.

Adjusted net earnings, without one-time charges, were $158.8 million, or $1.20 per diluted share. Bed Bath & Beyond topped a MarketBeat-published analyst consensus estimate of $1.11 for adjusted earnings per diluted share.

Comparable sales slipped 1.4% in the quarter year over year. The company added that comps from customer-facing digital channels were strong but that store sales declined in the mid-single-digit percentage range.

Net sales were $3.31 billion versus $3.72 billion while operating loss was $296.7 million versus operating profit of $337.1 million in the quarter a year before. In year over year comparisons, net sales were hit by an extra week in the year-past fourth quarter period and a shift in the post-Thanksgiving holiday sales period into the third quarter in the 2018 fiscal year.

For the full fiscal year, net loss was $137.2 million, or $1.02 per diluted share, versus net earnings of $424.9 million, or $3.04 per diluted share, in the prior year. Adjusted net income was $275.4 million, or $2.05 per diluted share.

Comparable store sales declined 1.1% year over year. Net sales were $12.03 billion versus $12.35 billion while operating loss was $87.1 billion versus operating profit of $761.3 million in the year before.

Bed Bath & Beyond asserted that it continues to push key initiatives including generating mid-and-long-term revenue growth from its portfolio of retail banners, conducting tests in Next Generation Lab stores to enhance the store customer experience, and enhancing the online experience. Bed Bath & Beyond noted that it is pursuing near-term and ongoing gross margin improvements through assortment changes designed to drive sales toward better margin categories, modifying pricing algorithms, further optimizing coupon strategy and making supply chain improvements.

“During the fourth quarter and throughout fiscal 2018, we have been driving significant foundational change across our business,” said Bed Bath & Beyond CEO Steven Temares. “The pace of our transformation accelerated during fiscal 2018, and we made measurable progress within each of our four focus areas of our plan. While this is a multiyear effort, our board and management team are confident that the actions underway to drive our near-term and long-term financial targets will enable Bed Bath & Beyond to succeed and drive shareholder value.”

In addition, Bed Bath & Beyond, in the wake of outside criticism about governance, has named Patrick Gaston as lead independent director and has reconstituted its nominating and corporate governance committee. In addition, the board is accelerating its refreshment program, which has already resulted in the addition of three new directors over the past two years. 

In a conference call, Temares said the company has been in the process of making leadership changes, including hiring new management, and developing agile teams to enhance cross-functional collaboration and decision making. He added that the board and management remain committed to shareholder interests and will address nominees to the oversight structure as suggested by the activist investors in the course of its normal evaluations.

Activist Investors Respond

In response to the earnings announcement, the activist company investors, Legion Partners Holdings, Macellum Advisors GP, and Ancora Advisors, that have been pushing for board and management changes, filed a statement with the United States Securities and Exchange Commission reading in part:

“Bed Bath’s fourth quarter earnings provided another example of why the company needs new leadership. Under CEO Steven Temares’ direction, the company has fallen far behind retail peers, and the operating deterioration is accelerating. Despite a rapidly growing e-commerce business, Bed Bath experienced another quarter of declining same-store sales.

“We were deeply concerned to hear management suggest, during the fourth quarter call, that they were going to reduce coupon availability to improve profitability. Our proprietary consumer survey work indicates this is a risky path to pursue given the wide range of margin enhancing opportunities available for both reducing product sourcing costs and lowering SG&A in non-customer facing areas. In our view, it does not make sense to make any couponing adjustments prior to executing on initiatives that would fundamentally improve the in-store experience for customers and drive retail traffic.

“The disappointing first quarter guidance consisting of accelerating declines in same-store sales and operating profit deterioration compared to managements’ unsupported claims of progress serve as a stark reminder to us of how far removed from reality Mr. Temares and the board have become. In our view, only the complete replacement of the board and CEO will be sufficient to drive the necessary changes to produce lasting margin improvements and growth in earnings. This focus must include a strategic review that evaluates non-core assets and prioritizes reducing inventory levels.

“We plan to release our detailed operational plan over the next two weeks and when shareholders have an opportunity to compare our initiatives, which will be fully quantified and sequenced to the recurring failed improvement efforts overseen by the current board and CEO Steven Temares, it will be clear that the optimal path forward is removing the entire board and hiring a new CEO. Shareholders deserve better, which is why Legion Partners Holdings has nominated 16 highly-qualified, independent candidates to the board at the 2019 annual meeting of shareholders. We are committed to taking on the hard work necessary to make improvements at Bed Bath for the benefit of all stakeholders.”