Why Bed, Bath and Beyond was Never a Cheap Stock

1 min read

Bed, Bath, and Beyond made it in the news a lot recently, and not for a good reason too.

A loss in cash, poor infrastructure, and a billionaire dumping his shares of the company – all in a week.

So, I decided to read up on the company’s annual reporting to read what was all the fuss was about.

What surprised me was how well the company was performing from 2010 to 2018. They were in the green.

So, I couldn’t understand why the company’s revenues and profit suddenly slid in 2018.

One line did pop up in the 2019 income statement that didn’t appear in previous annual reports to that year.

Impairment.

So, I read what the management team had to say about impairment, and the managers said that they never had to record impairment prior to that year.

That was a warning sign to me.

So, you’re telling me that a home goods store never had any impaired items?

To put this in perspective, did the Bed Bath and Beyond stores prior to 2019 manage to sell every little trinket they had and never had to write down any goods?

And, when impairment was recorded, it was a small number on the income statement too.

At least, to me, this sounds like warning signs.

And, it appears that the company is making up for it in the current year. Bed, Bath and Beyond has been undergoing restructuring for the last 3 years.

Supposedly, to modernize its chain supply and online services. And, all of this adds up to costs.

Also from personal experience having been in the situation myself, restructures rarely turn out for the better.

But, what surprises me the most is that the company uses its cash to repurchase shares. I’m not too sure if the company exactly has excess cash to resolve its current operations issues before it can even think about a share buyback.

The takeaway point from this is Bed, Bath and Beyond beware of companies that hold a significant inventory and do not record impairment.

Some people have made a nifty profit from trading Bed, Bath and Beyond but if you’re looking at this company from a value investor’s point of view, then there could be better alternatives.

Jason Huynh I'm a data analyst who enjoy reading annual reports. My hobbies include exercise, cooking and being a well rounded dad. I work as an analyst in the higher education sector in Australia but my passion is in investing. I used to believe that data could solve everything but it wasn't until I read Charlie Munger's "Poor Charlie's almanack" that I realised that I've been thinking in silos all this time and I really needed to expand my experiences and reading. What concerns me about life is making silly choices and following the trend aimlessly. I believe in critical thinking and serving others as I would like to be served.

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