Bed, Bath & Beyond Investors Watching Merchandise Mix During Sales Slump

Bed Bath & Beyond investors will be closely watching the home goods retailer's second quarter earnings on Thursday for clues as to how customers are responding to its merchandise overhaul.

The holiday season will be Bed Bath & Beyond's "make-or-break moment" to show shoppers that its new product assortment is worth a trip to one of its 770 stores, said Liza Amlani, a retail consultant based in Canada.

"Now more than ever, connecting with the consumer and selling as much product at full price as [it] can is critical," said Amlani.

The retailer is not currently exploring bankruptcy, a source familiar with the matter told Reuters last week, because of a recent loan that is expected to carry the company into 2023.

Analysts expect Bed Bath & Beyond's same store sales to slump 22.8% for the second-quarter, according to estimates from Refinitiv, even after the company was able to secure $500 million in financing ahead of the holiday season. The company in late August pre-announced comparable sales decline of 26% for the second quarter.

Bed Bath & Beyond declined to comment on its merchandising strategies.

Bed Bath & Beyond is not typically seen as a go-to retailer for holiday shopping and is more known as a destination for dorm and apartment shopping; however, the company has prepared its inventory with seasonal decor to take advantage of the shopping season.

"Their biggest challenge is going to be their product assortment," Amlani said. "Bed Bath & Beyond's product, price and promotions do not align."

Customers are passing over Bed Bath & Beyond's own brands in favor of nationally branded products.

Mara Sirhal, Bed Bath & Beyond's chief merchandising officer, said in an August investor call that she expects their assortment rebalancing between national and store-owned brands to take several quarters.

Investors also will pay close attention to its discounting strategy. Bed Bath & Beyond's popular 20%-off coupons have "conditioned the customer to expect markdowns," Amlani said, which can be dangerous during a time when a company is trying to boost its sales and widen its gross profit margins, which were 23.8% in the first-quarter.

Since August, Bed Bath & Beyond has posted jobs for pricing and assortment analysts, a director of loyalty as well as inventory control experts to figure out optimal pricing strategies, increase customer engagement, develop its multi-brand loyalty program and boost sales, according to its careers website.

It is partnering with supply chain management and retail planning software company Blue Yonder to "develop store clusters and optimize assortments," one Bed Bath & Beyond job posting said.

Blue Yonder and Bed Bath & Beyond did not immediately respond to request for comment on the partnership.

Analysts at brokerage UBS predict that Bed Bath & Beyond would use around $1.5 billion of cash flow over the next eight quarters. In addition to its liquidity woes, the company has announced more than 150 store closures, reversed its efforts to sell its baby-product chain buybuy Baby and pulled the plug on three of its store-owned brands.

Interim Chief Executive Sue Gove, who inherited the company in June, is expected to stay in her position for at least a year. She is tasked with paying down portions of the company's multi-million dollar loan, stocking stores with national brands that customers want and revamping its promotion strategy.