Bed Bath & Beyond Names Interim CFO as Changes Continue

After the sudden death of no-moat Bed Bath Beyond BBBY CFO Gustavo Arnal, the firm appointed Laura Crossen to the interim role. Crossen took on the chief accounting officer role in June, bringing vast knowledge of Bed Bath’s financial condition, with prior exposure to treasury and tax over her 20-plus years with the organization, an experience we view favorably. But this leaves Bed Bath in a precarious position, with an interim CEO and CFO at the helm in addition to organizational changes announced last week, which eliminated the chief operating office and chief store officer roles, delegating those responsibilities across brand presidents for Bed Bath and buybuy Baby. Effectively, the parties in charge are also in transition. We don’t plan to alter our Very High Uncertainty or Poor capital allocation ratings. ROIC performance that has consistently trailed our 9% cost of capital estimate and a strategic plan that mimics the pre-Mark Tritton plan—which failed—gives us little confidence that changes to the business should prove favorable for the brand and its return profile ahead.

We plan to maintain our $8 fair value estimate, which is predicated on a 4% average decline in sales over the next five years (with a 21% downdraft forecast in 2022), an operating margin that reaches 2% in 2026, and free cash flow to equity that fails to turn positive until 2025. This implies a business that is likely to tread water rather than make waves. Incremental liquidity was acquired last week through a $375 million first-in-last-out facility and a more than $100 million addition to its revolver, giving the firm time to right size the business. But it will need to extract the $250 million in savings quickly to stay afloat. Even with the extra liquidity and the possible equity offering of up to 12 million shares, which should yield around $85 million at the current market price, the company won’t cover costs for long as it produced a $224 million EBITDA loss in the first quarter.