Bed, Bath and Beyond Can't Find Footing

Entering the third consecutive year of falling earnings per share growth, no-moat

In this vein, we plan to lower our stewardship rating to Poor from Standard to reflect returns on invested capital that are set to fall below our weighted cost of capital estimate in 2018 (at about 7.5%), as it appears that capital allocation is no longer generating excess economic rents. With nearly all of the company’s board members sitting for 10 years or longer on Bed Bath’s board, we are discouraged that there hasn’t been more turnover, in light of performance in recent years. Without changes at the board level, we anticipate little in the way of adjustments surrounding the management team or allocation principles, which is the main factor that underlies our update.

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