Bed, Bath & Beyond Shareholders Beware as Ryan Cohen Takes Aim at the Company
The activist investor who famously bet on the Gamestop (NYSE:GME) short squeeze is now going after Bed, Bath & Beyond (NASDAQ:BBBY). Ryan Cohen turned $76 million of GME stock into $1.9 billion by last August. It was a squeeze built on small traders organized at Reddit’s r/WallStreetBets. Now, he has put $150 million into BBBY stock. It jumped 79% after his position was announced.
But the game is different now. Instead of just squeezing shorts, who held about 20% of BBBY common stock before he acted, Cohen has demands that any Wall Street vulture would applaud. It’s a case of “meet the new boss, same as the old boss.”
What This Means for BBBY Stock
Cohen’s letter to the Bed, Bath & Beyond board says the turnaround of CEO Mark Tritton looks “better in a PowerPoint deck than it does in practice.” He wants the company to sell or spin off Buybuy Baby, which he thinks will bring “several billion dollars” based on $1.5 billion in revenue. The company had a market cap of $2.2 billion on March 9.
Then, Cohen wants the main chain sold, implying a private equity buyer with retail experience would grab it.
There are holes in the proposal. First, the value of any retailing asset is depressed in the current market. Wars are unhealthy for all asset values. Second, Cohen doesn’t really offer BBBY a turnaround plan. He just wants to strip the assets and sell them off for a quick profit.
I have written approvingly of Tritton’s turnaround plan, which includes de-cluttering its locations and bringing in high-quality store brands. But progress has been slow.
Bed, Bath & Beyond’s sales fell 17% in 2021, mainly due to its sale of Cost Plus World Market. On the other hand, the company lost $151 million in 2021, 75% less than it lost in 2020.
Tritton has used asset sales like Cost Plus to raise $400 million for remaking stores, starting with a New York flagship. There, a limited selection of merchandise is arranged thematically rather than piled to the ceiling. He calls it an “omnichannel” experience, with online shopping built into the stores. He has also launched high-quality store brands that offer higher margins than the name brand merchandise the company formerly specialized in.
The Bottom Line on BBBY Stock
If you’re wondering what the future of BBBY stock might be if Cohen gets his way, look no further than Gamestop. The company is still going nowhere — revenue for 2021 was 21% less than it was in 2020. It also saw a net loss of $215 million.
It remains a money-losing chain of stores selling video games and accessories. It’s still threatened by cloud gaming, although the fate of Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Stadia has put that on the backburner. Analysts on TipRanks think you should sell GME stock.
So, what does this mean for BBBY stock?
In short, it’s not good news for the company’s shareholders. Cohen’s experience amounts to taking Chewy public and selling it on to Petsmart, which engineered most of its growth. Additionally, Cohen has hired a proxy solicitor Carl Icahn has used to solicit votes for his own Bed, Bath & Beyond board slate.
Cohen’s retail background pales in comparison to Tritton’s, whose turnaround plan is much better for the company and BBBY stock. That said, this doesn’t mean Cohen is going to lose. Breaking up and selling Bed, Bath & Beyond would give him a short-term profit and put a smile onto the faces of vulture capitalists everywhere.
But if I owned shares of BBBY stock, I would sell to him now and take my profits elsewhere.
On the date of publication, Dana Blankenhorn held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
