Bed Bath & Beyond Goes to the Moon

Shares surged after GameStop chairman disclosed stake in struggling retailer.

By guest author Jinjoo Lee from the Wall Street Journal

Diamond hands might be a struggling retailer’s best friend.

Bed Bath & Beyond’s BBBY +32.54% shares surged as much as 86% Monday morning after Ryan Cohen, the billionaire co-founder of online pet-products retailer Chewy and chairman of GameStop, disclosed a 9.8% stake in Bed Bath & Beyond through his investment firm. In a letter addressed to the retailer’s board, Mr. Cohen outlined steps the company might take, including narrowing its strategic focus, spinning off the faster-growing Buybuy Baby business and evaluating a sale to a private-equity buyer.

Turning the business around won’t be easy. Current management—including Chief Executive Mark Tritton —was brought in to fix the company two years ago after another group of activist investors pushed to shake up the board. There are no easy remedies for a home goods retailer that couldn’t bring back business at the height of a home furnishing boom that benefited almost all other retailers.

What Mr. Cohen does bring to the table is a loyal fan base of investors active on social media seemingly more interested in narratives than fundamentals who might be willing to overlook Bed Bath & Beyond’s lukewarm performance. The initial share price reaction to his stake was astronomical compared with the 22% bump registered after The Wall Street Journal reported in 2019 that the aforementioned group of investors was preparing a proxy fight to replace the board.

And it might even prove lasting. Though by then well off its peak share price from January 2021 shortly after Mr. Cohen announced he would join its board as chairman, GameStop completed an at-the-market stock offering last June that raised
USD 1126 billion “for general corporate purposes as well as for investing in growth initiatives and maintaining a strong balance sheet.” The entire company was worth less than USD 250 million two years ago. In the absence of large institutional investors aside from index funds, many analysts have dropped coverage of the stock, but the consensus sales and operating cash flow forecasts of those still following it for the current fiscal year are lower than before Mr. Cohen’s role was announced, according to FactSet.

This does bring about an interesting dilemma for Bed Bath & Beyond, which now has to decide whether to cater to the new investor crowd that Mr. Cohen is capable of bringing in. Despite being caught up in the meme-stock hype in early 2021, Bed Bath & Beyond’s management never capitalized the way that GameStop and movie theater chain AMC Entertainment Holdings did. It never announced plans to give out nonfungible tokens, for example, or to accept cryptocurrency as a method of payment. Ironically, Bed Bath & Beyond’s minor role in the original January 2021 meme stock squeeze might have cost shareholders money as it was then in the middle of an accelerated buyback program.

Whatever its board decides, for most Bed Bath & Beyond investors, Monday’s surge might serve as a sell signal. If GameStop shares are any indication, the excitement isn’t likely to last. Even though some analysts still believe in Bed Bath & Beyond’s turnaround potential (one of the 11 analysts polled by FactSet had a “buy” rating and six had a “hold” rating), none of them think the company is worth more than USD 20 a share, below the current USD 25 price.

That could change, of course. By any fundamental measure, the shareholders who pumped fresh equity into GameStop and AMC last year overpaid. But a poor decision for individuals can still breathe new life into a company armed with an enlarged war chest. Current Bed Bath & Beyond shareholders probably believe that analysts are too pessimistic, but they also could make a more cynical bet on the power of social media and the greater-fool theory.

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