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Why Bed Bath & Beyond Stock Stopped Trading Twice

Bed Bath & Beyond has been through the wringer in recent months as supply chain headwinds led to hundreds of millions in lost sales—upending plans for a much-needed turnaround and sending CEO Mark Tritton and chief merchandising officer Joe Hartsig packing

But now, the home and bedding retailer is grabbing headlines for completely different reasons after the Nasdaq temporarily halted trading twice Tuesday morning over volatile activity.

As of 3 p.m.Tuesday Bed Bath & Beyond stock was $21.80, nearly 36.25 percent higher than its $16 price point when trading started at 9:30 a.m. At 11:30 a.m., the stock had soared as high as 78.8 percent to $28.60.

The stock’s sharp rise is largely attributed to a flurry of retail investors, namely “meme traders,” after Gamestop chairman and activist investor Ryan Cohen made a bet on the home goods retailer.

Cohen’s investment vehicle RC Ventures, Bed Bath & Beyond’s second-largest investor with three independent directors installed on its board this year, bought call options expiring in January on 1.67 million shares with a strike price ranging from $60 to $80.

An option gives a trader the right to buy or sell a stock at a given price on a given date. Buying a call option is essentially betting the stock will rise in price. Bed Bath and Beyond stock—traded under the BBBY ticker—has risen nearly 400 percent since July 1.

The rally came despite the early morning release of a specialty retail analysis from B. Riley Financial senior equity research analyst Susan Anderson, who downgraded BBBY’s stock from a “Neutral” to “Sell” rating.

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Anderson reiterated the company’s existing price target at $5 per share.

“Our valuation is based on 0.2x our FY23 sales estimate. We have seen the stock increase more than 3x since BBBY reported a very weak Q1 leading to the ousting of CEO at the time Mark Tritton,” Anderson’s note said. “BBBY has recently gained the attention of retail traders in the WallStreetBets Reddit forum again, which gained notoriety during the GameStop saga back in January 2021. We believe that BBBY is currently trading at unrealistic valuations.”

She did note however, that the recent stock levels could potentially provide the retailer with a long-term lifeline. Other “meme stocks” like GameStop and AMC have used their prior stock boosts to raise capital through an at-the-market (ATM) offering to help generate cash.

The phenomenon is known as a short squeeze, when a high number of institutional investors like hedge funds “short” a stock, effectively betting that its share price will drop. When a large group of individual investors (such as the WallStreetBets traders Anderson referred to) buy the stock and increase its price, short sellers are forced to abandon their positions and buy back shares to cover their losses, thus sending shares even higher.

The stock still remains 59.6 percent off its six-year peak of $53.90 per share in late January 2021, when it was propped up in a short squeeze by a similar swath of meme traders.

Bed Bath & Beyond hasn’t performed anywhere near the level that would suggest that it deserves this kind of trading attention, but then again neither have GameStop and AMC. In June, BBBY saw net sales plummet 25 percent to $1.46 billion, with digital sales dropping 21 percent. The company racked up $358 million in net losses in the quarter.

Looking forward, B. Riley expects second-quarter 2022 earnings per share (EPS) losses of $1.63, with sales expected to plunge 27 percent. For the full year, the financial services company expects EPS to come at a loss of $6.45, even deeper than the prior estimates of $5.13.

And for 2023, the firm downgraded full-year EPS to a $3.53 loss, deeper than the $1.73 EPS loss.

“We anticipate investors will be focused on sales trends throughout the quarter as BBBY increased their marketing efforts including introducing a new loyalty awards program,” Anderson said. She also pointed out other hot-button areas across the company that investors will have to follow, including the potential sale of the Buy Buy Baby business, updates on the CEO search and updates on how the business plans to renegotiate its debt terms.

Baird’s Justin Kleber downgraded the retailer’s shares last week, before the stock’s latest burst, warning the “fundamental risk/reward looks unattractive” with market share losses accelerating and the company burning cash.

Questions also remain regarding the future of the merchandising operation. Earlier in August, Bed Bath & Beyond scrapped its Wild Sage private brand, which it launched just last summer as part of its focus at the time on owned brands.

While the retailer added eight new private-label brands in 2021 and one more this May, chief financial officer Gustavo Arnal said in a June earnings call that the private labels were a significant portion of continued inventory backlogs.

“There was a mismatch between when the demand was estimated, when the supply actually happened, compounded by the supply chain challenges in the industry,” Arnal said. “And now with softer demand, we’re seeing the home categories contracting as we speak. So there is that dynamic on the mismatch on supply chain and demand or current consumption.”