GameStop chairman Ryan Cohen is none too impressed with the work home goods retailer Bed Bath & Beyond (NASDAQ: BBBY) has done to turn itself around and thinks the time has come for the retailer to put itself up for sale.
In a letter to Bed Bath & Beyond's board of directors and Securities and Exchange Commission (SEC) filings, Cohen said his investment firm RC Ventures had taken a nearly 10% stake in the company, worth $150 million. He pointed out that after two and a half years under CEO Mark Tritton, the retailer still badly trails the S&P 500, the retail industry, and its peers.
Image source: Getty Images.
The situation today is no different than at any other point over the past decade, so it's not just the pandemic. As a result, it's time for Bed Bath & Beyond to take drastic action, including selling the business.
In a constant state of turnaround
Bed Bath & Beyond has been on a long, steady decline. Even after rival Linens 'n Things went bankrupt in 2008, leaving the retailer with the market mostly to itself, it was unable to establish a firm financial footing. Worse, it seemed to rest on its laurels, which allowed new competition from the likes of Walmart, Target, Wayfair, and Amazon to move unhindered into the field.
The COVID-19 pandemic may have hastened its fall, but Bed Bath & Beyond was already in trouble. A trio of activist investors targeted it in 2019, looking to shake up the business in the C-suite and board.
The home goods chain's founders retired from the board, directors resigned their seats to new independent candidates, and after the long-serving CEO was ousted, Tritton was installed and cleaned house.
According to Cohen, though, all that moving and shaking has had little effect. Moreover, Tritton has been overpaid compared to his peers while achieving subpar results in the process.
Image source: Getty Images.
Upend everything
Critiquing the the "highly publicized and scattershot strategy" Bed Bath & Beyond has undertaken, the activist investor says, "These results cannot be solely blamed on the pandemic when other retailers are nearing or exceeding 2019 sales levels."
That's why he's calling for a complete overhaul. Specifically, Cohen wants Bed Bath & Beyond to:
- Modernize the supply chain and its technology.
- Better manage the core product category and sustain the right product mix for customers.
- Finish store fleet improvements.
- Spin off or sell Buy Buy Baby.
- Sell Bed Bath & Beyond itself.
A couple of these lack specificity, like modernizing the supply chain and its technology capabilities, and one would think Tritton was already seeking the right product mix for customers. Also, I'm not certain it's fair to compare Bed Bath & Beyond to "peers" like Advance Auto Parts, AutoZone, Office Depot, Tractor Supply, or Ulta Beauty.
Physician, heal thyself
What it really seems to come down to is Cohen wants Bed Bath & Beyond to shed Buy Buy Baby and then put out a for sale sign for itself.
It wouldn't be the first time the sale of Bed Bath & Beyond has been considered. Goldman Sachs had been hired to handle the sale of other ancillary businesses including Cost Plus World Market and ended up fielding a bid from private equity for the whole company.
Obviously that was rejected, but it also likely means that whatever offer might be made could be far less than what was previously pitched. Bed Bath & Beyond has sold off most of those non-core operations and with a business that is still turning in relatively lackluster results, the retailer is not going to command a premium.
Yet the board is also probably not going to go for a sale anyway. It's only two-plus years into its turnaround and a massive chunk of the middle of that time was taken up by the pandemic. Cohen also hasn't proved he's any better at a turnaround.
After Cohen effected the takeover of video game retailer GameStop in 2020, its own earnings have been a disappointment and its recent results fell far short of expectations. Bed Bath & Beyond's board may likely want proof Cohen could do any better with its business as he has with his own.
Cohen isn't looking to sit on Bed Bath & Beyond's board, but he did say RC Ventures may seek seats.
A suboptimal solution
I'm not certain a sale is appropriate at this time, though the market responded to the move with a massive surge in the retailer's stock. Resurrecting a damaged business takes time: A ship needs to make a wide circle to make a U-turn.
Tritton actually seems to be making progress and the retailer's quarterly earnings show there's improvement under way. Selling the company would give a quick return to long-suffering investors, but there is still hope Bed Bath & Beyond is a long-term retail winner on its own.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns and recommends Amazon, Goldman Sachs, and Ulta Beauty. The Motley Fool recommends Tractor Supply and Wayfair. The Motley Fool has a disclosure policy.
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