UPDATE: March 27, 2019: Bed Bath & Beyond expanded its response later on Tuesday, criticizing the activist firms in a lengthy statement emailed to Retail Dive for failing to accept its offer to work with them to improve the business and participate in its "Board refreshment program," which has already entailed the appointment of "three new independent directors with relevant experience." The retailer fired back at claims of its financial distress by noting that it is "ahead of plan" on its long-term financial goals and current efforts are delivering results. While the company lamented that, "the Legion and Macellum representatives were merely seeking information to support their attack," it also invited them to provide "specific suggestions and recommendations." The retailer also stated that there’s "no shareholder action required at this time."
A group of investment firms and their affiliates comprising Legion Partners Holdings, Macellum Advisors GP and Ancora Advisors on Tuesday announced the nomination of 16 independent candidates for election to Bed Bath & Beyond's board, which would effectively turn over the board's entire 12-person team, and called for the ouster of CEO Steven Temares.
In the aggregate, the investor group owns about 5% of the retailer's outstanding common stock, including about 1% of shares underlying call options that are currently exercisable, according to a press release from the firms. In saying they will make the move at the retailer's upcoming annual meeting, the group's principals cited the board's "value destruction" and "self-enriching mindset as evidenced by its excessive pay packages and failure to hold itself and management accountable," according to the release.
"At Bed Bath & Beyond we are open to the views of our shareholders and value constructive input focused on enhancing value," a Bed Bath & Beyond spokesperson told Retail Dive in a statement. "We are making significant progress on our transformation to continue to strengthen our position as the expert for the home and heartfelt life events. Our Board of Directors and management team remain committed to creating value for all shareholders by transforming our Company to best position Bed Bath & Beyond for long-term success, and will continue to take actions to achieve these objectives."
There's no doubt that Bed Bath & Beyond is struggling, weighed down by too many stores, merchandise that e-commerce has mostly rendered to commodities that can be found anywhere and a tradition of coupons that guarantees markdowns on almost every purchase.
The retailer has worked to address all of that, shuttering underperforming locations, testing new store formats and assortments, planning private labels to differentiate its goods and attempting to switch customers from their ubiquitous coupons to a fee-based membership program. But progress has been slow, and, while in its most recent quarter the retailer boosted its top-line revenue by 2.6% year over year, store comps fell 1.8%.
The activist firms aren't buying the turnaround, though, and are bitter about the stock's plunge in recent years. "Temares has overseen the destruction of more than $8 billion in market value over his 15-year tenure, with total shareholder returns of negative 58%," according to their release. "Since early 2015, the stock has lost over 80% of its value."
The downfall is due to a litany of failures they describe in detail, including an, "apparent inability to prioritize a long list of poorly implemented initiatives and management's lack of success in adapting its business model to a changing retail landscape," resulting in "stagnant sales" and declining margins. They slammed current board members as "deeply entrenched," serving too long and having a "lack of retail expertise."
"The Bed Bath board is presided over by Co-Chairmen Warren Eisenberg and Leonard Feinstein who have both served on the board for 48 years while the Company has lost touch with modern retail," according to the release. "This has resulted in an apparent inability to appropriately respond to a changing retail landscape that demands greater aptitude for how to compete in an omnichannel world."
The shareholders also included resumes of their own candidates, and cited expertise among them including supply chain, private label, turnaround, merchandising, e-commerce, furniture and branding. "Bed Bath has tremendous potential with the right board and management team in place," they wrote in part.
Shares spiked on the move, but some analysts remain in wait-and-see mode. "While the activist plan does not appear to be a monumental shift in strategy, we believe a fresh set of eyes makes sense, both in terms of operations and the strategic outlook," Wells Fargo equity research analyst Zachary Fadem wrote in comments emailed to Retail Dive. "Given today's catalyst for change, shares are reacting very favorably ... which is understandable considering poor sentiment and ... short interest. That said, we wouldn't chase shares higher here, as we anticipate a long process with success not guaranteed."