Investor Group: More Changes Needed At Bed Bath & Beyond

Following Bed Bath & Beyond’s recent changes to its board, an activist investor group composed of Legion Partners Holdings, Macellum Advisors and Ancora Advisors, have released a presentation outlining its strategic plan for the retailer. Within hours, Bed, Bath & Beyond responded.

The investor group said the plan outlines the path forward to modernizing Bed Bath’s retail practices and delivering an earnings per share improvement.

The strategic plan includes the following highlights:

  • Revamp executive management: Recruiting a top-flight CEO to lead Bed Bath going forward and instill a world-class winning culture.
  • Reverse sales weakness: Fixing the merchandise over-assortment problem through a detailed SKU rationalization process as well as developing a merchandise architecture that will better resonate with customers. Making the in-store experience something that drives traffic to the stores will be a major priority.
  • Turn around company culture. Increase focus on employee training and education to improve motivation; empower employees to better use technology and improve customer experience.
  • Significantly expand gross margins. Improve vendor relations and drive profits by establishing a direct sourcing strategy and private label program as well as fixing mix issues created by the company’s shift to commoditized and lower margin products.
  • Implement cost cutting. Conducting an extensive reassessment of the increases in expenses over the last five years, including the explosion of the company’s advertising budget, seemingly endless array of initiatives that have failed to produce meaningful results and extensive use of consultants.
  • Improve inventory. Increasing inventory turns which would result in a substantial release of cash tied up in slow moving goods.
  • Fix capital allocation. Reviewing all non-core businesses and assessing their value as part of the business or their potential value to other parties. Excess cash created could be applied to share or debt repurchases. Lastly, the increase in capital expenditures will be addressed.

The investor group also noted that is own slate of director nominees have the “relevant experience and commitment to execute on these priorities and hold management accountable for delivering results.”

The group added, “The board changes announced earlier this week by Bed Bath are not nearly enough and appear hastily constructed. We believe CEO Steven Temares must be terminated as soon as possible and new directors must be added to the board that have direct experience in the following areas: customer-centricity, retail operations, sourcing, supply chain, private label, marketing, branding, e-commerce, and turnarounds. That is why we carefully selected our nominees to address the long list of issues at Bed Bath which have led to prolonged poor performance and destruction of shareholder value. We look forward to discussing the details of our plan and our nominees’ ability to drive material value creation at the company over the coming weeks.”

The Bed Bath & Beyond response to the investor group followed in a statement:

“Bed Bath & Beyond is executing on a comprehensive multi-year transformation plan to strengthen its position as the expert for the home and heart-felt life events. The plan is well underway and delivering results. The company’s board of directors and management are open to value enhancing ideas from all shareholders, and will carefully review the merits of the activist group’s presentation for opportunities to incorporate their feedback into its plan.

Upon our initial review, it appears that most of the operational areas targeted for improvement include actions the company is already taking as part of its transformation plan, which are already well underway, or have been substantially completed. Other target areas identified include actions that have been, and continue to be, considered by Bed Bath & Beyond. The company will provide a more detailed response at the appropriate time.

Bed Bath & Beyond always welcomes investor input toward the goal of driving shareholder value and returns. In fact, many of the transformational changes underway are a result of shareholder input throughout the last couple of years. While we have been and continue to be open to engaging with the activist group, we note that the activist group has steadfastly declined to engage in a constructive dialogue with the company, and instead, has chosen only to release its perspectives in a public forum.

Earlier this week, in response to shareholder feedback and in connection with its commitment to accelerating refreshment at the board-level, the company announced the transformation of its board of directors and additional governance enhancements. With these changes, the board will comprise 10 directors, nine of whom are independent and eight of whom have been appointed in the last two years. The company offered the activist group the opportunity to participate collaboratively in this board and governance transformation, but the activist group declined.

The board and management team are confident in the company’s ability to execute its transformation plan and meet key financial objectives, which include: mid-and long-term revenue growth, near-term and ongoing gross margin improvements, near-term and ongoing SG&A improvements, and current and sustainable world-class operational support. We have a committed team of associates focused on providing exceptional experiences for our customers as we continue driving improved financial results, which will lead to enhanced shareholder value. The board remains open to constructive feedback from all shareholders, and consistent with this approach, will consider any value enhancing perspectives from the activist group, as well as other existing and prospective shareholders, that help contribute to the ongoing efforts to achieve these objectives.

The post has been updated to include Bed Bath & Beyond’s response to the investor group.