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Bed Bath & Beyond (BBBY) Omits Key Positions to Boost Savings

Zacks Equity Research

Shares of Bed Bath & Beyond Inc. BBBY fell 2.1% following the announcement of headcount reduction at its headquarters in New Jersey and other selective locations, as part of its transformation strategy. This move comes after investors’ growing concern about the furnishing retailer’s ability to increase sales and margins.

Under the new cost-containment action, the company is eliminating certain key positions. As a result, its current president and COO Eugene A. Castagna left the company with immediate effect. Previously, the company saw the departure of its CEO Steven Temares in May 2019.

This move will enable the company to simplify its corporate structure, facilitating efficient realignment of resources within the business. These actions have resulted in roughly 7% reduction of corporate staff, including vice presidents, directors, managers and professional staff. All these employees were provided severance pay along with required support to help them switch to new jobs. The company will bear pre-tax cash restructuring costs of nearly $12.0 million in fiscal 2019 related to these job cuts. Moreover, the company intends to review its corporate cost structure on an ongoing basis to identify more options to save on costs. 

After these structural changes, the company anticipates annual pre-tax net savings of nearly $30.7 million. For the rest of 2019, pre-tax net savings is expected to be about $18.9 million, owing to the timing of these changes.

Further, the company is on track with its transformation plan, which focuses on four key areas — cost cutting, enhancing organizational structure, sustainable sales growth and optimizing assets.

However, the company reiterated its earnings view for fiscal 2019. Excluding goodwill and other impairments, and severance and shareholder activity costs, Bed Bath & Beyond continues to anticipate adjusted earnings at the lower-end of the $2.11-$2.20 range. This guidance already includes the estimated pre-tax cost savings due to the current restricting action.  Management also stated that it expects sequential bottom-line improvement, as earnings are likely increase in the second half of the fiscal. 

We hope that the company’s turnaround efforts will have the potential to bring it back on growth trajectory. Notably, this Zacks Rank #3 (Hold) stock has slumped 45.5% in the past three months, underperforming the industry’s decline of 12.1%.

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