Shares of Bed Bath & Beyond tumbled after the retailer reported disappointing sales numbers Tuesday evening, leading Wall Street to believe a true turnaround is going to take more time than initially anticipated.
The stock was on pace for its worst day ever. Shares, which had rallied roughly 53% in 2019, were last down more than 25% in trading Wednesday. The company has a market cap of about $1.4 billion.
Bed Bath & Beyond, which also owns Christmas Tree Shops and Buybuy Baby, said sales during the first two months of the fiscal fourth quarter were hurt by heightened promotions, falling store traffic and inventory management issues.
It said same-store sales, a key metric for the industry that tracks purchases at stores open for at least 12 months, during December and January dropped 5.4%. Analysts on average were expecting a drop of 3.97% for the fourth quarter, according to a poll by Refinitiv.
"We are experiencing short-term pain in our efforts to stabilize the business, including the pressures of store traffic trends coupled with our own executional challenges," CEO Mark Tritton said in a statement.
Bed Bath & Beyond also faced inventory issues during the holidays. It said certain categories were too low or out-of-stock, hurting results.
It said its gross margins dropped about 300 basis points because of increased discounts, which weigh on profits, and greater online sales, which can add costs for things such as shipping and returns. Bed Bath & Beyond said its digital sales were up roughly 20%. But same-store sales in brick-and-mortar stores dropped almost 11%.
This news painted a bleaker outlook for Bed Bath & Beyond — at least for the foreseeable future. Many investors had been encouraged when the company hired Tritton, a former Target chief merchandising officer, as CEO.
Tritton, who started at Bed Bath & Beyond on Nov. 4, was responsible for launching some of Target's most successful in-house brands, giving shoppers a reason to go to Target for things they cannot find elsewhere. He has been expected to bring that expertise to Bed Bath & Beyond, which rivals Target in many categories. One of his first moves in December was cleaning up the company's executive ranks, ousting six senior executives.
"This represents a discouraging start to the Tritton era," Wells Fargo analyst Zachary Fadem said. "And while it's widely understood that a Bed Bath & Beyond turnaround would be no easy task, we believe it's safe to say that [near-term] improvement appears increasingly unlikely at this point."
"The scope of this transformation is broad and may require a longer time horizon," Jefferies analyst Jonathan Matuszewski said, echoing this sentiment.
"We believe Tritton will be an asset in Bed Bath & Beyond's turnaround, though still view execution risk as high given the breadth of the transformation required (e.g., sourcing, e-commerce, store design, marketing)," he added. "We believe increasing competition from both mass retailers and direct-to-consumer concepts could make the road ahead increasingly bumpy."
Separately, Telsey Advisory Group lowered its price target on the company's stock to $15 from $18. At least four other brokerages cut their price targets to as low as $10. Shares had dropped Wednesday to below $11.
Bed Bath & Beyond is set to report its fourth-quarter and full-year earnings on April 15, after market close.