bed bath & beyond

Bed Bath & Beyond (NYSE: BBBY) stock is trading sharply lower in US premarket price action today after activist investor Ryan Cohen filed to sell his entire stake in the company.

Cohen holds an 11.8% stake in the company and intends to sell the entire stake over nine months. The stock sale filing comes after a frenzied rally in Bed Bath & Beyond shares which took them from a 52-week low of $4.38 to $30.

There has been a broad-based rally in meme stocks over the last month and Bed Bath & Beyond has been at the forefront. AMTD Digital meanwhile outwitted all the other meme stocks with its humongous rally which took its market cap above $350 billion. Its market cap has since fallen to around $33 billion.

Bed Bath & Beyond topped the list of stocks Reddit traders recommended in 2020 and 2021. The company has been trying to turn around the business and many retail traders were supportive of the turnaround. However, 2022 has been a reality check for all meme stocks, including BBBY.

Bed Bath & Beyond Missed Earnings Estimates

Bed Bath & Beyond’s most recent earnings fell short of analysts’ estimates. It reported a 25% YoY drop in its net sales in the quarter ending May 28. Also, comparable sales, which is a key metric for retail companies, plummeted by 23% in the quarter. The company’s adjusted gross profit margins also fell from 34.9% to 23.8%. The company ended the quarter with total cash of only $107 million but hinted that it is looking at asset sales to shore up its balance sheet.

Commenting on its outlook, Bed Bath & Beyond said that it expects comparable sales recovery in the second half of the fiscal year “driven by inventory optimization plans, including incremental clearance activity.” It also expects its adjusted SG&A (selling general and administrative) expenses to fall compared to the previous year as it realigns its cost structure to its sales.

Bed Bath & Beyond announced that its CEO Mark Tritton, who was leading the turnaround efforts would quit and Sue Gove would take over as the interim CEO. In her prepared remarks, Gove said, “I step into this role keenly aware of the macro-economic environment. In the quarter there was an acute shift in customer sentiment and, since then, pressures have materially escalated.”

Wall Street Analysts Find BBBY Stock a Sell

Wall Street analysts were anyways bearish on Bed Bath & Beyond stock. The short-squeeze-driven rally and now Cohen’s intent to sell shares is making analysts even bearish. Today, Wedbush analyst Seth Basham downgraded BBBY stock from a neutral to underperform and predicted a massive downside in the stock.

Advising investors to exit the stock and follow Cohen, Basham said, “BBBY finds itself in an unenviable position as it faces steep market share losses, an overabundance of inventory and dwindling cash reserves. Quickly fixing these issues will be challenging, particularly given the soft demand environment, continued rapid sales declines and a weak balance sheet, adding significant risk to the company’s prospects.”

Notably, inventory troubles were also visible in Target’s Q2 2022 earnings as it took a hit on margins in a bid to clear the inventories. Walmart has also warned of an overhang from unsold inventories of discretionary goods.

Analysts Find Bed Bath & Beyond Quite Overvalued

Wedbush is not the only brokerage warning investors to stay away from Bed Bath & Beyond. Earlier this week, B. Riley also warned that the stock’s valuations have reached unjustifiable levels.

While Odeon Capital Group is bullish on BBBY’s turnaround efforts, even it turned cautious after the massive short squeeze-driven rally. Loop Capital is among the most bearish brokerages on BBBY stock and sees it falling to $1. It said that during its channel checks it saw high discounting on private label merchandise, multiple items out-of-stocks, and dirty stores.

To be sure, many meme stocks do look detached from their fundamentals. However, some indeed are genuine turnaround stories. However, after the massive rally, even those bullish on Bed Bath & Beyond see it getting ahead of fundamentals.

Notably, while Cohen continues to remain invested in GameStop, and also took over the post of chairman, his views about BBBY seem to have changed after the massive rally.

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