Bed Bath & Beyond Is on the Verge of an Epic Comeback

(Bloomberg Opinion) -- In many cases, the pandemic has served to entrench the previously existing winners and losers in the retail sector.  Chains such as Macy's Inc. and Kohl's Corp., already deeply challenged before the public health crisis, look no closer to a turnaround. Walmart Inc. and Target Corp., meanwhile, have solidified their dominance with turbocharged sales.  

Against that backdrop, the latest quarterly earnings results from Bed Bath & Beyond Inc. stand out, because they show the long-suffering home goods chain to be in comeback mode. 

Bed Bath & Beyond, which also owns stores such as Buybuy Baby and World Market, reported on Thursday that comparable sales rose 6% in the three months ended in August from a year earlier, its first gain on that measure since the end of 2016. Executives said on a conference call that the trend continued into September, suggesting the company is sustaining momentum as the crucial holiday season approaches. Despite recording a 89% increase in digital sales — which can crimp profitability because of shipping costs — the retailer managed to deliver a higher adjusted gross margin than a year ago. The improvements sent shares soaring more than 30% on Thursday morning.   

Bed Bath & Beyond is certainly benefitting from factors beyond its control. The pandemic has made people spend more time at home, and that has encouraged them to splurge on decorating projects and cookware. It's also likely helped that, amid lingering safety concerns about going to brick-and-mortar stores, some of the company's key competitors, the TJX Cos.-owned HomeGoods and HomeSense, do not offer e-commerce.  

But it's more than that. CEO Mark Tritton, who has been in the job less than a year, appears to be succeeding at cleaning up the mess it took his predecessor, Steven Temares, well over a decade to make. Tritton has overhauled the C-suite, appointing new leaders for everything from merchandising to technology to supply chain. He has begun closing underperforming stores and modernizing its online offering. That showed in how quickly he moved to roll out in-store and curbside pickup of online orders — something the retailer should've been doing anyway — in the early days of the pandemic. Those services now account for 15% of digital sales. 

The company also said it recorded a lower coupon expense in the quarter, suggesting it is working toward a more effective promotional strategy than simply pummeling people with “20% off” coupons. And despite a highly uncertain situation for students about whether they'd be moving into dorms, the retailer managed to deliver a 21% sales increase on its products aimed at the back-to-college set, a testament to improvements in merchandising and marketing. 

Tritton is expected to unveil more detailed turnaround plans later this month at an investor day presentation, which should offer a clearer view of whether the company can keep up the progress over the long haul. But, for now, the improvement suggests that a 2019 activist investor showdown, while bruising, might have saved this company. 

The activist coalition — a group made up of Legion Partners, Macellum Advisors and Ancora Advisors — called for sweeping changes, including dumping the CEO and overhauling the board. That paved the way for the arrival of Tritton, a former chief merchant at Target Corp. who is well-suited to the task of fixing Bed Bath & Beyond. Just as Best Buy Co. has managed to find a way to thrive in the Amazon.com Inc. era as a big-box specialist in electronics, Bed Bath & Beyond could do the same in the home goods category. Thursday's results suggest it is one small step closer to such a transformation.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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