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Bed Bath & Beyond Q3: Supply Chain Breakdown Kills $100M in Sales

Continuing supply chain disruptions and other issues dealt Bed Bath & Beyond another difficult quarter, with comp declines in all five of the company’s destination categories.

Decor and bath led in category losses, down 19 percent and 18 percent from 2020, respectively. Bedding dropped 14 percent, as did home organization, although that category saw a 1 percent increase over 2019. Kitchen food prep fell 9 percent vs. 2020, but was up 6 percent over 2019.

Bed Bath & Beyond’s comparable store sales for the third quarter, which ended Nov. 27, declined 10 percent vs. 2020 and 5 percent from 2019.

CEO Mark Tritton attributed much of the decline to sourcing and inventory issues leading into the holiday season. According to Tritton, issues in receipt flow and on-shelf availability affected the company’s top 200 items, such as kitchen appliances and personal electronics, as well as key categories such as bed and bath. This resulted in around $100 million in lost sales over the quarter, with an even greater impact on December.

“Unfortunately, despite strong customer demand operational challenges such as vendor constraints, locked inventory once in our position, and a currently illiquid legacy infrastructure impacted our ability to drive further improvement in sales trends,” he said.

Inventory wasn’t the only factor impacted by supply chain disruptions. According to Tritton, paper supply and labor issues with print vendors impacted Bed Bath & Beyond’s ability to delivery its circulars to customers in a timely manner.

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One bright spot was the company’s BuyBuy Baby banner, which delivered mid-teens comparable sales growth versus 2020. Company margins also performed well. “During the quarter, we delivered gross margin of 35.9 percent, well above our plans despite sharp increases in inflation, and pervasive freight and supply chain cost pressures,” Tritton said.

Bed Bath & Beyond reported an adjusted EBITDA of $41 million, driven by lower sales during the third quarter. GAAP EPS was a loss of $2.78 per diluted share, which reflects approximately $2.53 of special items for the quarter.

The company’s cash and investment balance at the end of the quarter was approximately $600 million and total liquidity was $1.5 billion. Bed Bath & Beyond’s recent pro forma cash balance was $700 million, even after share repurchases. This was driven by an expected positive operating cash flow of more than $200 million in December.

Net sales: Total net sales declined 14 percent to $1.9 billion in Bed Bath & Beyond’s core banners. Bed Bath & Beyond CFO Gustavo Arnal noted that number included a 7 percent impact from the company’s fleet optimization program.

“As a reminder, and as anticipated, reported net sales continue to reflect the effect from expected non-core banner divestitures completed last year, as well as our ongoing planned store fleet optimization program,” he said.

Comparable sales for the third quarter dropped 7 percent from last year, and 4 percent from 2019.

CEO’s Take: While Tritton acknowledged the company has struggled the past few quarters, he remains confident it can continue to make incremental improvements and achieve its long-term transformation goals.

“If anything has remained constant since I first joined this company, it is… that we’re executing a full scale transformation and simultaneously running a business in a highly unpredictable environment,” he said. “That said, as aspects of our third quarter results demonstrated, we are diagnosing issues, implementing solutions and delivering on the long-term structural transformation quarter by quarter to ensure sustainability for our three-year goals.”