The struggling retailer's most recent quarter underscores its precarious fundamental position before the peak holiday shopping season.
Comparable store sales crashed 26% from a year ago as the economic slowdown and poor inventory quality weighed on store traffic. The challenged top line and increased discounting led to the company posting an operating loss of $168 million in the quarter.
Bed Bath & Beyond stock is down 58% so far in 2022.
Here are the details behind McShane's bearish Bed Bath & Beyond call:
Price Target: $2 (reiterated)
Rating: Sell (reiterated)
Stock price movement assumed: -67%
McShane isn't sold on the executive optimism from the company's earnings call.
"Although we think Bed Bath & Beyond sounded more constructive with regards to the opportunity in bringing back more national brands gradually, we continue to believe Bed Bath & Beyond will have a hard time driving customers to its store, especially in the second half given the amount of competition we expect in the home goods industry," the analyst wrote. "We expect higher inventories of home goods at discounters (i.e. Big Lots and Ollie's Bargain Outlets) as well as a likely more promotional environment in retail overall could further weigh on margins."
McShane added that "there could be upside if the company is successful at finding more cost savings (which in our management call back they indicated was possible), which could help offset this potential pressure and further their goal for breakeven cash flow by Q4."
Bed Bath & Beyond's sales have tanked in recent quarter.
Bed Bath & Beyond will remain a money losing outfit into 2023, according to McShane's modeling.
"We update our estimates post the second quarter earnings miss and reiterated fiscal year 2022 outlook," the note stated. "We are lowering our FY22 adjusted EBITDA estimate to ($470 million) from ($326 million) due largely to expectations for continued lower same-store sales with softening demand trends across the home furnishings industry, along with a gross margin decline amidst a promotional environment. Additionally, we are decreasing our FY23/24 adjusted EBITDA estimates to ($28 million)/$64 million, respectively."