For the average North American, it was once thought to be the place to go if you needed anything for your home. Now, Bed Bath and Beyond (NASDAQ: BBBY) has become a popularised stock that is on the brink of bankruptcy.
After failing to keep up with the online retail game and after a large investment by Ryan Cohen, chairman of GameStop (NYSE: GME) at the start of this year, Bed Bath and Beyond has now become an international meme stock – a stock that gains popularity among retail investors through social media platforms, predominantly through Reddit, which can have a massive impact on its overall price, as seen with GameStop.
For decades, BBBY established itself as a reputable, well-established chain of domestic retail stores operating in every state of the U.S., the district of Colombia, Puerto Rico, and Canada.
Their success was driven by a thorough and matchless operating system, in which each store’s lead managers would have complete autonomy to select merchandise based on their local market, thereby allowing stores to have a customised approach and cater to customers’ individual purchasing options, in turn increasing brand loyalty for the company.
An immense depth of products to match this system was another factor that enabled BBBY to become a leader in their field, above the likes of Marshalls and HomeGoods.
“You could just walk in and find just anything… people just didn’t really walk out empty-handed,” WSJ’s Suzanne Kapner states.
They also implemented a 20% off coupon, which allowed customers to buy quality, name-branded products at a very good price.
These systems and schemes were clever ways to first bring people in, then get them to spend more than they had originally intended.
The company’s share price also reflected this success, increasing by over 7000% from its IPO in June of 1992 till its peak in December of 2013.
Overall net income also increased every year from its IPO till the years after the GFC, then accelerated again, reaching a peak of US$1.03bn in 2013.
Then, around 2014, overall net income for BBBY began to fall drastically. 2019 saw the company record its first year of negative profitability since its IPO in 1992.
From that point to the present day, BBBY has recorded negative profitability in three consecutive financial years: (US$765m) in 2019-20; (US$337m) in 2020-21; and (US$473m) in 2021-2022.
Today, their share price sits at US$10.70, representing an 86% loss since their peak.
The company’s collapse came largely due to a failure to adapt to the current digitalised market, along with failing to incorporate the adequate technology needed to provide for the online sector.
“Their online presence was slow and clunky” Ms. Kapner states, attributing their lack of technological adoptions to them falling behind in the online market.
At the time of their initial downfall, Amazon also became one of their competitors and has completely dominated the online retail field ever since.
In 2019, following their first year of negative profitability, the company hired former executive of Target (NYSE: TGT) Mark Tritton to try and turn things around.
Mr. Tritton’s intentions to increase the company’s technological facilities to keep up with the market was sound, as it would help to capture some of the market share of the online sector.
However, it also required large amounts debt financing, and as COVID-19 struck in early 2020, the company was now battling even greater falling profitability and heavy short and long-term debts.
Mr. Tritton also introduced many new private label brands to the company, such as Nestwell and WildSage.
In doing so, Mr. Tritton pushed out the brands that customers had known and loved.
By removing these, he caused customers to feel a sense of confusion about the new products, further fuelling the decline in profitability.
Mr. Tritton’s poor operational decisions, in conjunction with the uncontrollable effects of the global pandemic, led to a further decline in profitability before he was laid off in June of this year.
Interestingly, since the start of 2022, the stock price hasn’t always reflected this continual flow of bad news, taking many significant swings, both positive and negative, over the course of the year.
And the reason for this is simple.
Earlier this year, founder of e-commerce company, Chewy, and the head of investment firm RC Ventures, Ryan Cohen, made the decision to purchase roughly 10% of the company, along with addition call options.
Mr. Cohen become popular after becoming Chairman of the GameStop Board in January of 2021, leading to a company-wide transformation. Many institutional investors had short positions in the company, and within two weeks of his appointment many retail investors – largely through reddit – had made the company a meme stock, helping the price rally by 1500% and earning Cohen a total gain of US$600m.
However, many have questioned whether Mr. Cohen’s activity surrounding BBBY have been lawful.
Initially, in March of 2022, Mr. Cohen filed a scheduled 13D, which is a detailed form one must file if they purchase more than 5% of the company. He purchased 7.78mn shares of the company and a number of out of the money call options.
On March 29th, the share price grew to US$27.23, up 79.62% from the 3rd of January.
Then, after reaching its 52-week low in July of US$4.38 after reporting more negative earnings, the shares rebounded quickly again on the back of more Cohen news.
Interestingly, on the 16th of August, Mr. Cohen filed a 13D amendment – basically saying that he still owned a large portion of the company.
This gave hope to the shareholders that he was sticking with the company that had just reported declining sales for the quarter.
However, just a day later, it was made public that Mr. Cohen filed a form 144, stating that he sold all his shares on the 16th and 17th of August.
His actions have raised many questions regarding a pump and dump strategy, helping him profit US$68.1 million over his 6-month tenure with BBBY.
Since then, the stock has fallen by more than half.
It’s a bad look for Mr. Cohen and has angered many retail investors, some of who are now demanding that the SEC open an investigation into his actions.
Recently, some of these same investors have been posting on twitter, begging Mr. Cohen to once again promote the company via the social media platform, believing that he will save them from their losses.
Such is life in the tricky world of meme stock investing – the online black hole where balance sheet fundamentals and sound financial decisions go to die.
