46 Finance Monthly. Inve s tmen t Why Did BBBY Go Down in the First Place? From September 2017 to March 2020, BBBY stock dropped by -86%. There are a couple of key reasons for its downfall unrelated to post-March lockdowns. Firstly, the company kept opening new stores at a time when Amazon has been selling the same home merchandise at a discount and online. In 2020, there were 1,500 Bed Bath & Beyond stores in operation, dropping since by -36%, to 953 in 2022. Out of those, 716 are in the US as of September 2022, which means that BBBY lacks international presence. Like GameStop’s brick & mortar retail business model, which went against inevitable digital distribution of games, BBBY went against the likes of Amazon’s international and lean warehouse distribution model. Case in point, for Q1 2022, AMZ had nearly 80x more net sales than BBBY while also having nearly 100x more operating cash flow. In the same period, BBBY’s sales dropped by -25%. Secondly, BBBY has been engaging in exorbitant stock buybacks for years. Since its share repurchase plan in 2004, it bought back nearly 75% of its stock, roughly $11.7 billion worth of 264.7 million shares. Typically, at prices 4-5x above present market price. This only ramped up after it became a meme stock in the last two years. When companies buy back their own shares, the pool of outstanding shares is reduced. In turn, the remaining ones are boosted because they are rarer. The problem is, BBBY bought over 3x more shares since 2004 than its current outstanding supply of 79.96 million, which is priced on average 4x less. In addition to stiff competition, this places BBBY in a losing streak, leading to August’s closures of 150 stores, 20% job cuts and refinancing. Unfortunately, this was too much of a pressure for BBBY’s Chief Financial Officer, Gustavo Arnal. Last week, his death was officially ruled as suicide as he toppled down from New York’s “Jenga” tower. Holding the Short Line, Until Fed’s Hikes It is safe to say that retail traders saved multiple companies from bankruptcy. Like GME and AMC, BBBY was one of the most heavily shorted stocks. From August to January of 2021, BBY became a hot short-squeeze topic, leading to short-sellers having to buy more stocks to cover their bets. As hoped by Reddit’s r/ wallstreetbets, this triggered a bloated BBBY stock, in just a couple of months. Seeing this growth, more retail traders piled on, while others were already locking in their profits. In the meantime, the ones holding the bag have been convincing a new wave of investors to “hold the line” because the company had a plan to come back. This strategy came to an abrupt halt when the Federal Reserve started ramping up interest rates. After having flushed the economy with $5 trillion of liquidity, which largely contributed to retail stock speculation, it was time to reverse Bed Bath & Beyond quarterly stock buybacks. Image credit: Ycharts 1D 5D 1M 3M 6M YTD 1Y 3Y 5Y 10Y MAX 240.00M 160.00M 80.00M 0.00 43.00M 2018 2019 2020 2021 2022
RkJQdWJsaXNoZXIy Mjk3Mzkz