If a play looks too easy does that make it dangerous? Normally when all the indicators are pointing in one direction, it makes you worry you are missing something. Is the outlook so negative that three brokers will suddenly upgrade it the next day? I don't fear that on BBBY. I think its best days are behind it and the market share losses will eventually kill it just like Sears and Toys-R-Us, Babies-R-Us and a dozen other retail chains. It is conceivable that Amazon could make an offer for their 1,500 stores and corner the market on housewares. Until then I recommend being short.
NEW BULLISH Plays
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NEW BEARISH Plays
BBBY - Bed Bath and Beyond - Company Description
Bed Bath & Beyond Inc., together with its subsidiaries, operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles; and home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and various juvenile products. It also provides various textile products, amenities, and other goods to institutional customers in the hospitality, cruise line, healthcare, and other industries. As of March 2, 2019, the company had a total of 1,533 stores, including 994 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico, and Canada; 277 stores under the names of World Market, Cost Plus World Market, or Cost Plus; 124 buybuy BABY stores; 81 stores under the Christmas Tree Shops, Christmas Tree Shops andThat!, or andThat! Names; 55 stores under the Harmon, Harmon Face Values, or Face Values names; and 2 two retail stores under the One Kings Lane name. It also offers products through various Websites and applications, such as bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, facevalues.com, christmastreeshops.com, andthat.com, buybuybaby.com, buybuybaby.ca, harborlinen.com, t-ygroup.com, worldmarket.com, ofakind.com, onekingslane.com, personalizationmall.com, chefcentral.com and decorist.com. In addition, it operates Of a Kind, an e-commerce Website that features specially commissioned limited edition items from emerging fashion and home designers; One Kings Lane, an authority in home decor and design that offers a collection of selected home goods, and designer and vintage items; PersonalizationMall.com, an online retailer of personalized products; Chef Central, an online retailer of kitchenware, cookware, and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform. The company was founded in 1971 and is based in Union, New Jersey. Company description from FinViz.com.
Bed Bath and Beyond reported "adjusted" earnings of 12 cents, down from 38 cents in the year ago quarter. For GAAP earnings they lost $2.91 per share on revenue of $2.57 billion. The company took an impairment charge of $401 million, only slightly better than the $500 million charge in the prior quarter. Sales declined 6.5% year over year but are down -44% for the last 12 months. Needless to say, they missed all the estimates.
Analysts claim the stores are understaffed, have shrinking inventory and declining market share. Competition with Target, Walmart and Amazon is proving to be nearly impossible. The new CEO of two months has a herculean task ahead of her and she knows it. She said in order to compete "we need to give consumers a reason to keep shopping in our brick and mortar stores and in order to do that we need to update the stores and enhance the shopping experience." Unfortunately, that costs money and unless consumers drop in, they will never know anything has changed.
BBBY is heading the way of dozens of other retailers. They are following the path of Sears where inventory became nonexistent and salespeople even scarcer. Shares closed at a multiyear low and more than likely will move lower.
Sell short BBBY shares, currently $10.89, stop loss $11.85.
Optional: Buy Nov $10 put, currently $1.02, stop loss $12.00.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps more than $1.00 at the market open.