Dive Brief:
- Moody’s on Wednesday downgraded Bed Bath & Beyond’s corporate rating to Caa2 from B2 and gave the retailer a negative outlook.
- The analysts with the ratings agency pointed to a “steep decline” in revenue and EBITDA, as well as challenges Bed Bath & Beyond faces in regards to its profitability.
- The analysts, led by Moody’s Senior Vice President Christina Boni, also cited problems around inventory. “Inventory levels are not only elevated and misaligned with sales trends but are overweighted to private label product which must be cleared and replaced with national brands in the face of weaker consumer demand,” they said.
Dive Insight:
The downgrade comes as Bed Bath & Beyond navigates through a tumultuous time.
Mark Tritton, who in 2019 was brought on from Target to help lead a turnaround effort at the home goods retailer, late last month announced his departure from the company. At the same time, Chief Merchandising Officer Joe Hartsig also stepped down from his post.
The C-suite shakeup came as Bed Bath & Beyond reported first quarter net sales of $1.5 billion, down 25%, while comparable sales fell 23%. Its operating loss grew by over $265 million, while net loss increased by more than $300 million.
“The downgrades reflect governance considerations which include the company's rapid departure of its CEO and Chief Merchandising Officer, the completion of its $1 billion accelerated share repurchase program with $40 million of share repurchases in the first quarter of 2022 despite the company's weak operating performance and the ineffectiveness of its turnaround strategy to meet the continuing pressures on Bed Bath's operations and credit metrics,” Moody’s analysts said Wednesday.
Bed Bath & Beyond benefited in the early days of the pandemic as consumers were largely stuck at home and were actively seeking out products in the category. The retailer maintained a medium default risk in 2020 and 2021, according to data provided by RapidRatings.
But as economies opened back up, helped by the widespread distribution of vaccines, demand shifted away from home goods, causing sales and traffic declines at Bed Bath & Beyond. As of June this year, the retailer had a high default risk, according to RapidRatings.
Earlier this year, Chewy founder and activist investor Ryan Cohen criticized the home retailer’s turnaround strategy, which has included introducing 10 private labels, remodeling stores and improving its omnichannel capabilities.
Cohen, who became board chairman at GameStop after undertaking an activist campaign there, in March pressured Bed Bath & Beyond to pursue a sale of its BuyBuy Baby business or, potentially, a sale of the entire company. Later in March, the retailer entered into a cooperation agreement with Cohen and his activist fund, RC Ventures. As part of that deal, Bed Bath & Beyond agreed to add three directors of RC Ventures’ choosing, two of which were tapped to join a group focused on exploring “alternatives to unlock greater value” from the BuyBuy Baby banner.
As of late June, Bed Bath & Beyond said it was continuing to evaluate options for the BuyBuy Baby business.
