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Bed Bath & Beyond Down 12% As 3-Year Plan Fails To Impress Investors
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Bed Bath & Beyond Down 12% As 3-Year Plan Fails To Impress Investors

Shares of Bed, Bath & Beyond tanked 12.1% on Wednesday as investors seemed unimpressed by the company’s 3-year financial roadmap. The company also announced its decision to resume share buybacks following a temporary suspension in March.

Bed, Bath & Beyond (BBBY) said that it expects same-store sales to be stable in fiscal 2021 and rise in the low-to-mid single digits in fiscal 2023. The retailer also expects gross margin to come in at about 35% in fiscal 2021 and improve to over 38% in fiscal 2023. It predicts a mid-single-digit EBITDA margin in fiscal 2021 and a high-single to low-double-digit margin in fiscal 2023.

BBBY intends to improve its sales by accelerating its “Digital-First, Omni-Always” transformation. It also plans to invest about $250 million in the remodeling of stores over the next three years with a focus on 450 stores, which generate about 60% of its revenue. BBBY had earlier disclosed that it is on track to close about 200 stores under its namesake brand by 2021.

The company is also enhancing its assortment and expects to introduce over 10 new owned-brands in its key destination categories within the next 18 months, with the goal of tripling the penetration of owned brands over three years.

Meanwhile, to strengthen its position in the Baby market, BBBY intends to expand its store footprint by opening additional stores in new markets and boost sales by 50% to about $1.5 billion by fiscal 2023.

In a separate announcement, BBBY revealed that it has launched a $225 million accelerated share repurchase plan, as part of its authorized share repurchase program of up to $675 million over the next three years.

“Our decision to resume our share buyback program coupled with our actions to date to pay down debt, sell non-core assets and increase liquidity, reflect the strength of our business and financial position, capacity for strategic investments, disciplined approach to capital allocation and our confidence in our growth plan,” stated BBBY’s CEO Mark Tritton.

In reaction to the growth plans, Wells Fargo analyst Zachary Fadem reiterated a Hold rating with a price target of $17 for BBBY and cautioned that “the transformation won’t be cheap, heavy lifting remains, and the spotlight shifts to execution during a period of increasing macro uncertainty, wonky y/y comparisons, and rapidly shifting consumer needs and preferences.”

“While Mark Tritton and company talked a good game today, we see an opportunity to take profits, as shares are +104% in 3 months (vs. +2% SPX), expectations are calibrating higher, and success of new initiatives likely won’t be linear (with limited visibility),” added Fadem. (See BBBY stock analysis on TipRanks)

The average analyst price target of $22.56 implies an upside potential of 6.9% for the months ahead, with shares already advancing 22% year-to-date. The Street is cautiously optimistic about BBBY. A Moderate Buy consensus for the stock is based on 5 Buys, 3 Holds and 2 Sells.

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