The Ratings Game: Bed Bath & Beyond is closing 60 stores, new CEO expected ‘soon’

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Bed Bath & Beyond Inc. is closing more stores than expected, one of a few reasons analysts are bullish about the struggling home retailer.

During its earnings call late Wednesday, Mary Winston, Bed Bath & Beyond’s BBBY, +0.35%   interim chief executive, said the company is closing about 60 stores in fiscal 2019, up from 40 that was previously estimated. The closures will include 40 Bed Bath & Beyond stores and 20 “concept” stores.

Other brands in the Bed Bath & Beyond portfolio include Cost Plus World Market and Harmon.

“With this action, we are increasing the profitability of our remaining portfolio and believe that our remaining fleet will benefit from our renewed focus on driving traffic and operating efficiency,” Winston said, according to a FactSet transcript.

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The company also has more than 400 leases expiring over the next couple of years that the company said.

“[W]e are encouraged about the progress the interim leadership is making around gross margins and SG&A as well as the accelerated store closures,” wrote Raymond James analysts in a note. “Moving forward, the potential for non-core asset sales and new CEO announcement are two catalysts that should move Bed Bath & Beyond higher over the coming weeks/ months.”

Bed Bath & Beyond’s CEO stepped down in May. Winston, a new addition on the company’s board at the time, was appointed on an interim basis.

She said on the call that the search has made “substantial progress” and a selection is expected “soon.”

“As we highlighted in our March 2019 upgrade, we believe there is still value in the enterprise and with the right management team and store investment strategy Bed Bath & Beyond is a fixable business,” wrote Raymond James, which rates Bed Bath & Beyond stock a strong buy with a $17 price target.

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On Monday, Bed Bath & Beyond was upgraded at Wedbush based on factors like store remodels and sale of non-core assets.

Bank of America published a bullish note, also in favor of these actions. Analysts there estimate that the sale of non-core assets could generate $850 million to $900 million along with $1 billion in cash on the company’s balance sheet.

“This could be used for significant share buyback and/or debt reduction with ample capacity for capital expenditure needs,” analysts said.

Moreover the potential for tariff impact turns out to be much less than analysts anticipated.

On the call, Chief Financial Officer Robyn D’Elia said the “vast majority of its products” are sourced domestically.

Bank of America reiterated its buy stock rating and $20 price objective.

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Not everyone is upbeat, with CFRA maintaining its sell rating based on the same-store sales result, which were down 6.7%.

But even other concerned analysts see positive signs ahead.

“While we continue to see risk to sales , we also believe new management can find cost, margin and capital allocation opportunities that could create meaningful value for shareholders, particularly considering the current valuation of the stock, though this seems more likely to bear fruit in 2020,” KeyBanc Capital Markets analysts wrote in a note.

KeyBanc rates Bed Bath & Beyond shares sector weight.

Bed Bath & Beyond stock closed Wednesday at $10.02, and are down 28.8% over the last year. The S&P 500 index SPX, +0.62%   is down 0.8% for the period.