BBBY Bed Bath and Beyond Inc

By Suzanne Kapner 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 5, 2018).

Bed Bath & Beyond Inc. survived the recession and outlasted competitor Linens 'n Things, positioning the seller of towels, bedding and other home-related items to reap the rewards of a booming U.S. housing market.

Instead, the chain is mired in a slump. Last week it reported its sixth consecutive quarter of declining same-store sales, and said profit plunged 48%. Its shares have fallen more than 81% from their all-time closing high of $80.48 on Jan. 3, 2014, erasing some $15 billion in market value. On Wednesday, the stock closed at $13.96, down 7 cents.

The one-time category killer has lagged behind rivals such as HomeGoods, owned by TJX Cos., Wayfair Inc. and Amazon.com Inc., which analysts say offer lower prices and more relevant products. Its troubles underscore how even in a strong economy, retailers that have been unable to adapt to changing consumer habits continue to fall further behind.

Chains from Walmart Inc. to Nordstrom Inc. that have been investing in e-commerce, streamlining their supply chains and adding more exclusive products are logging some of the strongest sales gains in years.

But others, including Toys "R" Us Inc., which filed for bankruptcy protection a year ago, J.C. Penney Co. and Sears Holdings Corp., are losing ground.

"We believe we are taking the right steps to transform our company, and that we are in a strong position to continue to advance our strategic initiatives," said Jessica Joyce, a Bed Bath & Beyond spokeswoman.

She added that the company's recent performance reflects the investments it is making in a variety of areas, including renovating stores, reducing inventory, and using technology to ensure its prices are competitive. It is adding new categories, including decorative furniture and a line of custom-designed furniture under the One Kings Lane brand, the flash-sale website it bought in 2016.

Its new loyalty program offers shoppers 20% off their entire purchase, plus free shipping, for a $29 annual fee in a bid to compete with Amazon's prime service.

Analysts said many of these changes aren't happening fast enough. The company has renovated nine out of its more than 1,000 Bed Bath & Beyond stores, although it will have 40 completed by spring and has identified 125 additional locations for future overhauls. (The company also owns the Harmon drugstore chain, Christmas Tree Shops, buybuy BABY and other chains.)

"Their stores look the same as they did decades ago -- cluttered," said Cristina Fernández, a senior research analyst at Telsey Advisory Group.

Even though the retailer is known for doling out coupons, its prices are still too high, analysts said, a disadvantage in an age when consumers are accustomed to searching out the best deals online.

A basket of 50 items sold on Bed Bath & Beyond's website in August was 16.2% more expensive than an identical basket sold by Amazon.com, according to Seth Basham, a Wedbush Securities analyst.

"That gap is too wide," Mr. Basham said. "Their pricing is a major barrier."

Ms. Joyce, the spokeswoman, declined to comment on the Wedbush analysis. She said there are many reasons why pricing studies can be unreliable, including a small basket size, items that aren't directly comparable, and fluctuating prices.

Bed Bath & Beyond evaluates roughly 750,000 items across 32 competitors multiple times a day to ensure its prices are competitive, she said, and the company has introduced a price-matching policy.

"We believe that being priced right is critically important," Chief Executive Steven Temares told analysts on a Sept. 26 conference call to discuss the company's results.

For Pat Sussel, the ability to feel the heft of a frying pan, or the softness of a towel outweighs the money she might save by ordering on Amazon. "I like to see and touch before I buy," said the 67-year-old music producer who splits her time between New York and Los Angeles.

But shoppers like Ms. Sussel may be dwindling. Bed Bath & Beyond's customer visits to stores fell 13% in the three months to Sept. 1, according to inMarket, which analyzes location data from 50 million people via their mobile devices.

Total sales in the recent quarter were $2.9 billion, unchanged from a year ago, while sales excluding newly opened or closed locations fell 0.6%.

Kinsey Keck said she orders almost everything online, but made the trip to a Bed Bath & Beyond store in Manhattan on a recent afternoon to buy a mirror after the one she ordered from Amazon arrived broken. But she wasn't happy about it. "I hate coming to stores," said the 30-year-old graduate student. "The lines are too long."

Mr. Temares, CEO since 2003, said the renovated stores were performing above the company average with sales and transactions up 4% and 3%, respectively. He added that inventory was down about $100 million in the recent quarter, compared with the year-ago period.

Yet, profit tumbled to $48.6 million from $94.2 million, as margins were pressured by an increase in the average coupon amount and higher shipping expenses for online orders.

In a rare public rebuke, investors voted to unseat a longtime Bed Bath & Beyond director, Victoria Morrison, and rejected the retailer's compensation plan at its annual meeting in June, even though the board has lowered Mr. Temares' total compensation every year since 2015.

Ms. Morrison, who had served as a director since 2001, was a member of the board's compensation committee. Institutional Shareholder Services, the proxy advisory firm, had recommended shareholders withhold their vote from members of the committee, although Ms. Morrison was the only member who failed to get a majority of votes.

She was required to tender her resignation following the vote. But Bed Bath & Beyond said last week it had rejected her resignation, deeming it "would not be in the best interest of the company or its shareholders," according to a regulatory filing.

Ms. Morrison declined to comment.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

(END) Dow Jones Newswires

October 05, 2018 02:47 ET (06:47 GMT)

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