Bed Bath & Beyond Inc. (NASDAQ: BBBY) today announced a strategic and business update focused on changes intended to meet the demand of its customers, drive growth and profitability, and improve its balance sheet and cash flows.
Sue Gove, Director & Interim Chief Executive Officer commented, “We are embracing a straight-forward, back-to-basics philosophy that focuses on better serving our customers, driving growth, and delivering business returns. In a short period of time, we have made significant changes and instituted enablers across our entire enterprise to regain our dominance as a preferred shopping destination for our customers’ favorite brands and exciting products. We command a special presence in the Home and Baby markets, and we intend to fulfill our opportunity to be the category retailer of choice.”
Ms. Gove continued, “We are working swiftly and diligently to strengthen our liquidity and secure our path for the future. We have taken a thorough look at our business, and today, we are announcing immediate actions aimed to increase customer engagement, drive traffic, and recapture market share. This includes changing our merchandising and inventory strategy, which will be rooted in National Brands. Additionally, we are focused on driving digital and foot traffic, as well as optimizing our store fleet. We believe these changes will have a widespread positive impact across customer experience, inventory assortment, supply chain execution and cost structure. The customer underpins our decisions, and we are committed to delivering what they want while driving growth, profitability, and financial returns.”
Strengthening Our Financial PositioningLiquidity
The Company announced it has secured financing commitments for more than $500 million of new financing, including its newly expanded $1.13 billion asset-backed revolving credit facility (“ABL facility”) and a new $375 million “first-in-last-out” facility (“FILO facility”). The refinancing of the ABL Facility is being led by J.P. Morgan, and Sixth Street Partners is serving as the Lender and Agent for the Company’s FILO facility. The commitments are subject to customary closing conditions. There is no guarantee that the closing conditions will be satisfied, however, the Company anticipates that the closing and funding of the loans will occur imminently.
Additionally, the Company filed a Form S-3 Registration Statement with the SEC earlier this morning as it prepares for the potential launch of an at-the-market offering program (“ATM”) for up to 12 million shares of common stock. The potential proceeds from an ATM are expected to be used for a number of corporate purposes, including to repurchase or repay some of the Company’s debt.
Cost Structure
The Company has begun implementing significant, additional SG&A reductions to right-size its cost structure. These reflect the Company’s immediate priorities of merchandising, inventory, and traffic, and also align with changes in store footprint, lower Owned Brands development and support, and deferral of longer-term strategic initiatives. Cost optimization plans include a reduction in force, including approximately 20% across corporate and supply chain.
The Company expects the actions announced today to reduce SG&A by approximately $250 million in fiscal 2022.
Additionally, the Company has further reduced its plan for capital spending. In fiscal 2022, planned capital expenditures are now forecasted to be $250 million, compared to the $400 million previously disclosed, and are expected to provide sufficient strategic investment in technology, digital capabilities and offerings, and store maintenance.
Real Estate and Store Fleet Optimization
The Company has identified and commenced the closure of approximately 150 lower-producing Bed Bath & Beyond banner stores. The Company continues to evaluate its portfolio and leases, in addition to staffing, to ensure alignment with customer demand and go-forward strategy.
Better Serving Our CustomersMerchandising and Inventory
Customers are expected to benefit from swift actions the Company is taking in its Bed Bath & Beyond banner to rebalance its assortment and improve inventory. These include adjusting merchandise allocations to lead with customer preference and bringing back popular national brands and introducing new, emerging direct-to-consumer brands. The Company is working expeditiously to increase its National Brands inventory where possible and will increase inventory penetration by 20 percentage points over the long term.
Accordingly, the Company will be exiting a third of its Owned Brands by discontinuing three of its nine labels (Haven™, Wild Sage™ and Studio 3B™). The breadth and depth of inventory across the Company’s six remaining Owned Brands (Simply Essential™, Nestwell™, Our Table™, Squared Away™, H for Happy™ and Everhome™) will be substantially reduced to 20 percentage points, reflecting a more balanced sales to stock ratio moving forward.
Customer Engagement
The Company plans to leverage its recently introduced, cross-banner loyalty program, Welcome Rewards™ to drive traffic, sales, and customer retention. Welcome Rewards™ brings valuable savings, more benefits, and special perks to customers who shop online and in stores nationwide at Bed Bath & Beyond, buybuy BABY, and Harmon. Customers earn and redeem points across all three retail banners with every purchase across all retail channels and banners. Since recently launching nationally, the program has seen strong momentum with five million total members, increasing new membership by 20%.
Supporting Suppliers and Vendor Partners
The Company’s teams are working closely with supplier and vendor partners to ensure customers have access to a strong assortment of their favorite brands across both store and digital channels. The Company will host a supplier event in early-Fall 2022 to build on new and strengthen existing relationships, address any issues to ensure strong support, and work collaboratively to create the best experience for shared customers.
Building on the Strength of buybuy BABY
The Strategy Committee of the Board of Directors, with the assistance of independent strategic and financial advisors, has completed a comprehensive review of the inherent value of the Company’s buybuy BABY banner, which confirmed the banner’s strategic potential. The Board of Directors believes that, at this time, buybuy BABY will deliver greater value for the Company’s shareholders as part of the Bed Bath & Beyond Inc. portfolio. The Board of Directors and management team have identified several strategies to implement impactful, organic changes to accelerate further growth and unlock the brand’s full potential including building on its digital and registry platforms, addressing additional age groups and expanding products and services. The Board of Directors’ Strategy Committee will continue to monitor the buybuy BABY business as it preserves optionality and future value creation.
Leadership Changes
The Company has realigned its executive leadership team to reflect the strategic priorities and changes announced today. Mara Sirhal has been appointed to Executive Vice President and Brand President of Bed Bath & Beyond. In addition, Patty Wu has been promoted to Executive Vice President and Brand President of buybuy BABY. The newly created Brand President roles will be responsible for each banner’s merchandising, planning and allocation, brand marketing, and stores, and will report directly to Ms. Gove.
Ms. Sirhal most recently served as the Company’s Executive Vice President and Chief Merchandising Officer for the Bed Bath & Beyond banner. Ms. Sirhal joined the Company in January 2021 as Senior Vice President and General Manager for Harmon to lead all operational aspects of this business. Ms. Sirhal’s retail experience includes nearly 20 years across a variety of categories in merchandising, product development, planning, digital, inventory management, supplier diversity, and leased businesses at Macy’s, Inc.
Ms. Wu has served as the Senior Vice President and General Manager of buybuy BABY since joining the Company in January 2021. Prior to buybuy BABY, Ms. Wu held several executive leadership positions across retail and business, including the roles of Chief Commercial Officer of Beautycounter, Chief Commercial Officer and General Manager of the Baby Division at The Honest Company, as well as senior management roles at Mattel, Inc. and Walmart.
In conjunction with these changes, the Company has eliminated the Chief Operating Officer and Chief Stores Officer roles. Accordingly, John Hartmann and Gregg Melnick will be departing the Company.
CEO Search
Harriet Edelman, Independent Chair of the Bed Bath & Beyond Inc. Board of Directors, said: “It is clear from the focused work to date, evidenced by the breadth of today’s announcements, that Sue has quickly formulated and executed important changes to customer-facing strategy, operations, management team, cost structure and liquidity. On behalf of the entire Board, we are very pleased and confident that Sue’s dedicated leadership will continue to have a significant, positive impact on Company performance. Regarding our search for the Company’s next Chief Executive Officer, the Company’s Board of Directors previously announced that it retained nationally recognized firm, Russell Reynolds. We are in the earliest phase of the search process and will provide an update when appropriate.”
Financial Update (Interim)
At this time, the Company is providing the following interim financial update for the second quarter of fiscal 2022 ended August 27, 2022:
– Net Sales of approximately $1.45 billion
– Comparable Sales decline of approximately 26% compared to the second quarter of fiscal 2021
– Free Cash Flow usage of approximately $325 million
Additionally, the Company is providing the following interim financial update for its fiscal 2022 expectations:
– Comparable Sales decline in the 20% range driven by improvements in the second half of fiscal 2022 versus the first half of fiscal 2022
– Adjusted SG&A expense approximately $250 million below last year reflecting cost optimization actions occurring in the second half of fiscal 2022
– Capital expenditures of approximately $250 million versus the Company’s original plans of approximately $400 million
The Company has not yet completed its quarterly financial close and plans to provide its full financial results for the second quarter on Thursday, September 29, 2022. Until that time, the preliminary results described in this press release are estimates only and remain subject to change and finalization based on management’s ongoing review of results of the quarter and completion of all quarter-end close review process.
