Bed Bath & Beyond (BBBY 22.27%) investors trounced the market this week. Shares jumped 22% through Thursday trading as the wider market rose 0.5%, according to data provided by S&P Global Market Intelligence. The surge looks less impressive when you zoom out, though. The struggling retailer’s shares remain lower by nearly 60% so far in 2022.
The weekly rally wasn’t powered by an improving outlook around sales and earnings, but instead appeared to be driven by speculative short-term bets on the meme stock.
Bed Bath & Beyond’s financial prospects didn’t improve this week. On the contrary, the company is facing increasing cash flow pressures that have reportedly led it to seek new loans on the private market, according to Bloomberg. Success on this score would help deliver flexibility as the company works to get sales trends back on track. But Bed Bath & Beyond isn’t moving toward that rebound today.
In fact, comparable-store sales dove 27% in its fiscal first quarter, ended May 28, as profitability slumped. The company is losing market share even as the home furnishings niche shrinks in the wake of pandemic-related shifts in shopping behavior.
Things will likely get worse for the retailer before they get better. Executives said in late June that demand pressures “materially escalated” in the most recent quarter. Bed Bath & Beyond has to deal with slowing demand and elevated inventory levels, raising the risk of large price cuts ahead for the holiday shopping season.
As a result, investors shouldn’t view stock price jumps like this past week’s rally as evidence that the business is on a stronger footing. Those signs will come from improving sales trends first, followed by stabilizing operating profit margin. Until those key metrics start recovering, investors should look toward more successful retailing business as potential stock buys.