Heads are rolling at Bed Bath & Beyond after a dismal first quarter forced the home goods retailer to give its CEO and merchandising chief the boot in hopes of turning around a tailspin.
The company’s stock fell more than 23 percent to $5.02 in mid-afternoon trading.
During its Q1 2022 earnings call, the company announced Sue Gove, who serves on the Bed Bath & Beyond board’s strategy committee, will take the helm as interim CEO replacing Mark Tritton.
“Sue has a pivotal role in overseeing this transition and making sure we take swift action,” said Harriet Edelman, Bed Bath & Beyond board independent chair. “Sue has served on our board since 2019 and is a deeply experienced board member and business executive across a number of senior financial, operating and strategic roles.”
The company also announced Mara Sirhal will assume the role of EVP and chief merchandising officer, replacing Joe Hartsig. Sirhal—who previously served as SVP for Bed Bath & Beyond and general manager for Harmon—will be tasked with driving omnichannel merchandising and private-label brand strategies.
The leadership changes come amid another abysmal quarter for the home goods retailer, with a 25 percent net sales decline to approximately $1.5 billion and a 23 percent comp sales drop versus last year.
Comp store sales declined 24 percent, while digital sales—which account for approximately 40 percent of total net sales—dropped 21 percent compared to this time last year. Bed Bath & Beyond comparable sales decreased 27 percent versus last year while BuyBuy Baby comp sales declined mid single-digits, consistent with market trends. Harmon delivered positive comps.
“The Strategy Committee has done a great deal of work to date on evaluating the potential of the business, and the business remains strong today,” she said. “So we’re going to continue to build on that work to evaluate the options of the business and unlocking the future potential. It’s still a work in process. But we know there is interest.”
Bed Bath & Beyond reported a GAAP gross margin for the quarter of 23.9 percent and 23.8 percent on an adjusted basis. Elevated supply chain costs impacted the adjusted gross margin negatively by 330 basis points year-over-year, which more than offset 60 basis points of higher net product margin. The company also had a negative 840 basis point impact from transient costs related to inventory markdown reserves and port-related supply chain fees. Excluding these transient costs in the quarter, the retailer’s adjusted gross margin was 32.2 percent.
Chief financial officer Gustavo Arnal pointed to those ongoing elevated ocean freight fees, the arrival of delayed product, and reduced consumer demand led to an overabundance of inventory—approximately 15 percent more over this time last year—and the 25 percent decline in sales. Target has admitted to similar problems.
“This delta of almost 40 percentage points between sales and inventory is worth more than $0.5 billion in cash,” he said. “As exhibited by the inventory charge taken this quarter, we intend to work aggressively to clear the excess inventory that we and the industry now face.”
Arnal said the company’s private labels accounted for much of that inventory glut, since most of them are imported and had longer lead times.
“There was a mismatch between when the demand was estimated, when the supply actually happened, compounded by the supply chain challenges in the industry,” he 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.”
Grove added that while private or “owned” brands remain important to Bed Bath & Beyond’s overall strategy, the company plans to create more of a balance of national brands, direct-to-consumer brands, and private-label brands.
Arnal said the company plans to aggressively cut costs, including slashing planned capital expenditures by a minimum of $100 million to approximately $300 million. Gove added that the company will focus its resources on improvements that will drive immediate results.
SG&A dollar expense remained below last year, primarily due to cost reductions and lower rent and occupancy expense following more store closures, including 37 by February this year. Sales of gross margin performance led to negative adjusted EBITDA of $224 million, a loss of roughly $100 million s that impacted adjusted gross margin.
Looking toward the remainder of the fiscal year, Arnal said Bed Bath & Beyond expects second quarter sales to continue trending in the negative 20 percent range. The company expects those comp sales to improve sequentially during the second half of fiscal 2022, driven by inventory optimization plans, including incremental clearance.
CEO’s Take: Gove said that while many macro challenges such as shipping delays, increased freight fees, and softening demand have impacted Bed Bath & Beyond, the company realizes these issues aren’t the sole cause of its trouble.
“Our results are not up to our expectations nor are they reflective of our potential,” she said. “Like many of our retail peers, Bed Bath & Beyond is facing a difficult macro environment. However, even during these periods of industry-wide challenge, our shareholders, associates, customers and partners all expect more from us and I couldn’t agree more. We must deliver better results.”
While Gove holds down the fort in the interim position, Edelman said the company is actively searching for a new CEO, looking for someone who has “a focus on merchant skills, modern retailing, digital and omni capabilities, but sharp skills and emphasis on operations execution, cost effectiveness and balance sheet.”