Bed, Bath and Beyond (BBBY) Up 27% after Ryan Cohen’s Stake Revealed
Retail’s power to surge stocks made a showing today again as Bed, Bath and Beyond (BBBY) reacted to Ryan Cohen’s declaration that he owns a 9.8% stake in the company on Sunday.
The Securities and Exchange Commission (SEC) filing shows Cohen got into BBBY on February 24th with 9,450,100 voting power shares, with his RC Ventures LLC as the investment vehicle.
GME Chairman Plans to Change Bed, Bath and Beyond for Better with 9.8% Stake in Company
The question is, what did the present chairman of the video gaming retailer GameStop (GME) do to make BBBY open at $30, the highest price in the last 6 months? In Cohen’s letter to BBBY’s board on March 6th, where he revealed his 9.8% ownership of the company, he stated the following:
“We believe Bed Bath needs to narrow its focus to fortify operations and maintain the right inventory mix to meet demand, while simultaneously exploring strategic alternatives that include separating buybuy Baby, Inc. (“BABY”) and a full sale of the Company.”
Cohen further admonished the BBBY board for overpaying its executives despite being unsuccessful in consolidating losses. He even included a comparison table with the S&P 500 index, showcasing Bed Bath’s losses vs. the CEO’s tenure, which would be Mark Tritton.
Cohen pointed out that during two-and-a-half years under Tritton’s leadership, BBBY underperformed S&P Retail Select Industry Index by nearly 60%, with a 29% drop in annual sales from the pre-C19 period. Meaning, if other companies in the same industry are outperforming BBBY, the faultline doesn’t lie in the C19 fallout as an excuse.
Bed Bath and Beyond (BBBY) as a Part of the Stock Meme Trading Package
At the beginning of 2021, just like with GME and AMC, Bed Bath & Beyond (BBBY) came upon retail traders’ radar via the WallStreetBets subreddit. At the time, the theory was simple. Viral fears are transitory, so a company like BBBY, which relies on travel and hosting, will eventually recover.
In other words, retail traders bought the discounted shares in times of great fear, following Warren Buffet’s old maxim to “be greedy only when others are fearful.”
Later in the year, in November 2021, BBBY announced the launch of its digital marketplace where people could trade goods with third parties. As a result, BBBY stock jumped by 70%, fortifying its position as a volatile meme stock.
This was an attempt to reinvent the old formula, following the deal with Kroger grocery chain to offer BuyBuy Baby products on Kroger.com and in physical stores, beginning in 2022. It is this reinvention and expansion that worries Cohen, urging the company to focus on the core business model and separate BuyBuy Baby, Inc. (“BABY”).
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How Did Retailers React this Time?
When we look at BBBY stock performance over the last year, its ATH was $44 on June 2nd, 2021, due to summer’s traditional lack of seasonal flu. The aforementioned marketplace launch triggered the spike to $24 on November 2nd, 2021. The latest high, triggered by Cohen’s letter and near-10% BBBY stake, caused its shares to jump by 105%.
As usually happens with these stock spikes, at press time, it stabilized to just a 27% increase since Cohen’s letter on Sunday. Presently, BBBY has a market cap of $2.06 billion, the business valued at nearly double that at around $4.1 billion. Unfortunately, the company’s total debt is rather substantial at $3.06 billion.
Cohen also proposed the partial sale of its BABY division to pay off the debt.
“In the event Bed Bath pursued a full or partial sale of BABY, it could position itself to pay off debt, put cash on the balance sheet and continue reducing its share count, thereby creating significant value for shareholders.”
Lastly, BBBY’s short interest, as the number of shorted shares divided by the number of outstanding ones, sits at 25.87%, which is considered an extremely high level. Commonly, such a level indicates that a company is in trouble. Yet, it seems retail investors count on Cohen’s intervention and his relatively high staking to save the day.
Do you think retail and social trading will only grow bigger in the future? Let us know in the comments below.