Nearly a month after announcing a major overhaul, Bed Bath & Beyond leadership confirmed another quarter of double-digit sales declines hinted at during its company update on Aug. 31.
Second-quarter net sales were down 28 percent to approximately $1.4 billion, reflecting a comp sales decline of 26 percent versus the same quarter last year. By channel, comp sales declined 28 percent in stores and 22 percent in digital versus the fiscal 2021 second quarter. Bed Bath & Beyond banner comp sales decreased 28 percent while BuyBuy Baby comp sales declined in the high teens compared to growth in the same quarter last year.
GAAP and adjusted gross margin was 27.7 percent for the quarter, and adjusted gross margin included a 260 basis point negative impact compared to last year from accelerated clearance activity as Bed Bath & Beyond works aggressively to right-size inventory levels commensurate with sales. Interim CFO Laura Crossen said port-related supply chain costs also impacted adjusted gross margin by 100 basis points compared to the same period last year. Excluding the aforementioned 360 basis points of accelerated and transient costs, second-quarter adjusted gross margin would have been 31.3 percent.
Bed Bath & Beyond’s SG&A expense on both a GAAP and adjusted basis remain at lower levels compared to the prior year period, primarily due to cost reductions and lower rent and occupancy expenses on a lower store base following the company’s fleet optimization program. SG&A margin for the quarter increased on a GAAP and adjusted basis versus last year due to lower net sales. These results don’t reflect cost optimization plans that began following the Bed Bath & Beyond’s Aug. 31 strategic update. Significant SG&A actions include a 20 percent reduction in force across corporate and supply chain, in addition to decreases in indirect spending throughout the organization.
Adjusted EBITDA for the period was $168 million, reflecting lower net sales and lower adjusted gross margin.
Net loss per diluted share of $4.59 for the quarter reflected approximately $1.38 of special items for the quarter. Excluding special items, adjusted net loss per diluted share was $3.22. Special items during the second quarter included restructuring costs driven by severance charges related to the departure of certain executive officers.
For the fiscal 2022 second quarter, Bed Bath & Beyond reported operating cash flow of approximately $198.9 million. Investing cash flow of $121.6 million was primarily driven by planned capital expenditures in connection with store remodels, new openings (related to BuyBuy Baby), maintenance and investments in technology. The retailer paused new stores and remodels for the remainder of fiscal 2022, which is expected to reduce its planned capital expenditures by approximately $150 million from a prior expectation of approximately $400 million.
Cash, cash equivalents, restricted cash and investments totaled approximately $0.2 billion and total liquidity was approximately $0.5 billion as of the fiscal 2022 second quarter, including the company’s prior $1.0 billion asset-backed revolving credit facility less borrowings of $550 million and approximately $136.4 million in letters of credit.
While Bed Bath & Beyond hopes the $500-million investment announced in August, along with store closures, corporate restructuring and a returned focus on national brands rather than private labels make a positive difference, Crossen said the outlook going forward still includes significant declines.
“We continue to expect comparable sales decline in the 20 percent range as the rate of decline in the second half of fiscal ‘22 abates versus the first half,” she said. “This expectation contemplates our trends to-date, which have not changed materially from Q2 given the gradual progress on inventory and merchandising we anticipated.”
And as Bed Bath & Beyond shifts its inventory focus, vendor relationships become even more critical. Gove said the company is working closely with suppliers and has a vendor summit planned in October.
“They want us to win and they are supporting our assortment changes that are going to create the best experiences for our customers,” she said.
Net sales: Bed Bath & Beyond net sales declined 28 percent in the second quarter to $1,437 million, reflecting a comparable sales decline of 26 percent and 2 percent related to the impact from fleet optimization activity.
“Net sales continue to reflect the impact from our previously enacted store fleet optimization program, which was consistent with last quarter at 2 percent,” Crossen said. “By channel, store comp sales were down 28 percent, while digital sales declined 22 percent versus last year. Our digital channel remains approximately 40 percent of total net sales.”
CEO’s Take: While Gove acknowledged third quarter numbers may not show it, she insisted that Bed Bath & Beyond is starting to see positive impacts from its recent overhaul.
“Although still very early, we are seeing signs of continued progress as merchandising and inventory changes begin,” she said. “For example, we have seen positive sales trends where in-stock positions and visual merchandising have improved.”
Gove also pointed to the retailer’s customer loyalty program and BuyBuy Baby brand as potential drivers for stronger performance going forward.
“Our Welcome Rewards loyalty program also continues to gain momentum with membership expanding by more than 1.3 million since the end of August, for a total of 6.4 million members since launching this summer,” she said. “Enrolled members represent more frequent purchases and higher transaction values across all three banners. Our BuyBuy Baby business continues to hold market share relative to other mass market retailers in today’s highly competitive environment.”