- Moody's dropped Bed Bath & Beyond's corporate credit rating to B1 from Ba3 and gave the retailer a stable outlook. The downgrade follows a third quarter report of widening losses.
- Analysts with the ratings agency cited supply chain hiccups and challenges in executing on its turnaround strategy.
- Those difficulties "more than offset its successful efforts to roll out its private brand portfolio, increase its digital sales penetration, divest non-core banners and rationalize its store base," Moody's Senior Vice President Christina Boni said in comments on the downgrade.
Bed Bath & Beyond was among the retailers that prospered in the early phases of the pandemic. Stuck inside, consumers refreshed their homes, giving their living space more attention and dollars than they have in years.
By the end of 2020, Bed Bath & Beyond was posting positive profits and comparable sales increases, after years of declines and disappointments.
The pandemic's boost to the home goods category came at a fortunate time for the retailer, as it was launching into a turnaround effort spearheaded by CEO Mark Tritton, a Target vet who joined Bed Bath & Beyond late in 2019.
In 2021, though, new challenges arose. Vaccines, an employment rebound and stimulus spending drove a domestic demand surge for retail (meanwhile spending on experiences has lagged with the pandemic still circulating). Rising demand collided with a supply chain constrained by COVID-19 outbreaks in heavy manufacturing countries as well as shortages in freight capacity and equipment.
That's where Bed Bath & Beyond has had some of its steepest challenges in recent months. "Overall sales were pressured despite customer demand due to the lack of availability with replenishment inventory and supply chain stresses that had an estimated $100 million, or mid-single digit, impact on the quarter and an even higher impact in December," Tritton said in a January statement.
The supply chain challenges bring a double whammy, dinging the company's profits with added costs at the same time as stalled inventory makes for lost sales. On a call this month with analysts, Tritton noted, "Issues in receipt flow and on shelf availability affected our top 200 items, such as kitchen appliances and personal electronics, as well as our key categories such as bed and bath," according to a Seeking Alpha transcript.
As Moody's Boni pointed out, Bed Bath & Beyond's sales are weakening at the same time as freight and other supply chain costs eat into its profits. Moody's also noted that despite the retailer's increased e-commerce sales, "the company remains vulnerable to intense competition from e-commerce as well as other value players and traditional discounters."
In the January call, Tritton touted the company's promotion strategy and margins from its owned brands, and said the company is making investments in supply chain technology.
"During this first year of our three-year transformation, there has been no shortage of activity," Tritton said. "From our new omnichannel and merchandising initiatives to the reformation of our supply chain and technology, we are paving a path towards greater profitability and growth for the future."