Bed Bath & Beyond downgraded by Moody’s

diving letter:

  • Moody’s lowered Bed Bath & Beyond’s corporate rating to B1 from Ba3 and gave the retailer a stable outlook. The downgrade follows a report of widening losses in the third quarter.
  • Analysts from the rating agency named problems in the supply chain and challenges in implementing their turnaround strategy.
  • These difficulties “offset successful efforts to expand its private label portfolio, increase its digital distribution penetration, divest non-core banners and streamline its store base,” Moody’s senior vice president Christina Boni said in comments on the downgrade.

Dive insight:

Bed Bath & Beyond was among the retailers that thrived in the early stages of the pandemic. Stuck on the inside, consumers have been freshening up their homes, giving their living space more attention and money than they have in years.

At the end of 2020, Bed Bath & Beyond reported positive earnings and comparable sales increases after years of declines and disappointments.

The pandemic’s upsurge in the homewares category came at a fortunate time for the retailer as it was just about to embark on a turnaround led by CEO Mark Tritton, a Target vet who joined Bed Bath & Beyond in late 2019.

In 2021, however, new challenges arose. Vaccines, a recovery in employment and stimulus spending have fueled domestic retail demand (while experience spending has lagged as the pandemic is still raging). Rising demand collided with a supply chain constrained by COVID-19 outbreaks in heavily industrialized countries and shortages in freight capacity and equipment.

This is where Bed Bath & Beyond has had some of its biggest challenges in recent months. “Overall sales were pressured despite customer demand due to lack of availability with replenishment inventory and supply chain stress, impacting an estimated $100 million or mid-single digits for the quarter and even more in December,” Tritton said in January -Explanation.

The challenges in the supply chain deal a double whammy, eating into the company’s profits with additional costs, while stagnant inventories mean lost sales. In a phone call with analysts this month, Tritton noted, “Issues in receipt flow and on-shelf availability affected our top 200 items like kitchen appliances and personal electronics, as well as our key categories like beds and baths,” according to a Seeking Alpha transcript.

As Moody’s Bonuses pointed out, Bed Bath & Beyond’s sales are faltering, while freight and other supply chain costs are hurting profits. Moody’s also noted that despite the retailer’s increased e-commerce sales, “the company remains vulnerable to intense competition from e-commerce as well as other value players and traditional discounters.”

On the January conference call, Tritton touted the company’s advertising strategy and the margins of its own brands, and said the company is investing in supply chain technology.

“There has been no shortage of activity during this first year of our three-year transformation,” Tritton said. “From our new omnichannel and merchandising initiatives to the reform of our supply chain and technology, we are paving the way to greater profitability and growth for the future.”

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