Bed Bath & Beyond posted a first-quarter revenue gain, beat a Wall Street estimate and discussed how its acquisition of The Container Store is affecting its plans to reintroduce the Bed Bath & Beyond banner in physical retail.
As part of a letter to shareholders released concurrently with the financial results, Marcus Lemonis, Bed Bath & Beyond executive chairman and CEO, said the recently completed first quarter was the first such period in 19 during which the company returned to year-over-year revenue growth.
“Over the last two years, we have fundamentally rebuilt this business,” Lemonis indicated. “This was not an effort to stabilize short-term performance. It was a deliberate reset of how we operate, with the goal of creating a model that can grow consistently on a lower and more durable cost structure.”
Lemonis (pictured above) added Bed Bath & Beyond achieved improved performance while “operating with the lowest cost structure the business has had in over 12 years. This is not growth driven by incremental spending. It is growth building on top of a fundamentally reset operating model.”
As it released the financial results, Bed Bath & Beyond announced it appointed Kyla Robinson chief technology transformation officer, reporting to company president Amy Sullivan. Robinson oversaw digital commerce, product, engineering and customer experience at Spanx prior to taking on her new role at Bed Bath & Beyond, and she has had leadership experience with Nike, Walmart and Saks Fifth Avenue.
By The Numbers
Bed Bath & Beyond net loss in its first quarter was $16.4 million, or 24 cents per diluted share, versus a net loss of $39.9 million, or 74 cents per diluted share, in the year-earlier quarter. Adjusted for one-time events, the company reported a net loss of $16.8 million, or 25 cents per diluted share, versus $22.8 million, or 42 cents per diluted share, in the year-prior period.
A Zacks Investment Research analyst consensus estimate came in at a loss per adjusted diluted share of 31 cents on revenues of $238.9 million.
Net revenue was $247.8 million versus $231.7 million in the year-previous quarter. Operating loss was $18.2 million versus an operating loss of $23.2 million in the period a year before.
In a conference call, Lemonis noted that among recent acquisitions – including Kirkland’s; The Container Store and its home organization components such as Elfa; Lumber Liquidators; Cabinets to Go; and Gracious Home – Bed Bath & Beyond’s move to bring The Container Store on board has caused a reconsideration of store strategy.
“I think it’s important to delineate the two omnichannel businesses that we have purchased,” Lemonis said. “Kirkland’s, with its small format, what I consider undermarket real estate, meaning that we believe we acquired leases that are under market, about 230 to 240 of them. They range from 5,000 to about 10,000 square feet. The reason that we slowed our pace down of converting many of them to Bed Bath & Beyond home stores is as we looked at the numbers, we just didn’t feel like we had all of the categories that we needed. So in addition to the 100 Container Store locations, we will have at least 100 small neighborhood format locations of Bed Bath & Beyond/Container Store, Container Store/Bed Bath & Beyond.
“As I move to The Container Store specifically, for the last 18 months, I’ve been studying this business, visiting every single store,” he continued. “I’ve been to, I think, 93 of the 100 already. And what I came down to is one simple conclusion. Across the 100 locations, there were 2.2 million square feet of retail. And in my opinion, half of that, maybe slightly more, was wildly underutilized, with triple-facing SKUs with, in my opinion, certain categories far too wide and not deep enough and with an attempt to address certain categories that I felt fell very short.”
Integrated Approach
As the company considered the store format, Bed Bath and Beyond concluded integration was necessary.
“Rather than thinking about walking into the store and expecting to see Bed Bath & Beyond on the left and Container Store on the right, I would rather you thought about it as general merchandise in one specific area that includes storage and organization, kitchen, bath, bedroom, a little bit of decor and other impulse items that may be seasonal-relevant in one portion of the store,” Lemonis said. “The other portion of the store would be filled with custom spaces and design spaces, which would include Elfa, Closet Works, Gracious Home Cabinetry, which is a higher version of Cabinets To Go and Gracious Home Flooring, which is a higher version of Lumber Liquidators, but us leveraging their existing supply chain and expertise.
“So that when a consumer walks through the door, it is my goal to take it from an average of about $220 per square foot; I think we can get to $500 a square foot within 24 months,” he added. “Now, nobody should be applauding or patting anybody on the back for $500 a square foot. The true number to get to the 7% EBITDA contribution on a 4-wall basis is about $615 a square foot, but it takes a very good balance between general merchandise and the home services business.”
Lemonis said the reason he made a point of the delineation “is that the blended margin of general merchandise should be in the 35% to 37% range, and the blended margin of the home services business north of 60%. So we want to make sure that we’re allocating not only enough talent, training and resources to the home services, but we need that blended margin to come in north of 40% for us to see the kind of EBITDA margins we know give us the kind of returns on investment we need.”
Moving Forward
In announcing the financial numbers, Lemonis said first-quarter results demonstrated that the work Bed Bath & Beyond has done to stabilize and rebuild the business has been such as to allow the enterprise to move forward.
“We delivered real year- over-year revenue growth, something we haven’t seen meaningfully in several years, while continuing to take costs out of the business and operate more efficiently,” he said. “That combination matters. Our omnichannel retail brands remain the front door to the customer. We’re seeing better engagement, stronger conversion and improvements in average order value, which tells us the customer is responding to the investment we’ve made.”
Lemonis added, “Our product categories and home services initiatives are the engines that drive demand. When you connect that with our digital and financial capabilities, you start to build an ecosystem that keeps the customer engaged longer and increases lifetime value. Our improving results and strategic advancements, including our most recent announcement to acquire The Container Store, Elfa and Closet Works, will position us well to deliver long-term shareholder value aligned to our Everything Home three-pillar ecosystem.”
