Why I’m Avoiding Bed Bath & Beyond Stock Like the Plague

The retail chain is rolling out yet another turnaround plan.

If you pay any attention to volatility in the stock market, you've likely noticed Bed Bath & Beyond (BBBY) stock lately. The retailer's shares have been up by nearly 100% and down by over 60% so far in 2022.

Yet the business trajectory hasn't changed much during that time. Sales are shrinking, net losses are mounting, and there are head-turning shake-ups happening at the management level.

Sure, it's possible that the next round of strategic shifts might land shareholders positive returns, especially if the chain receives a generous buyout offer or a huge cash infusion. But I wouldn't buy this stock in hopes of scoring that quick payoff.

The bad results keep coming for Bed Bath & Beyond

The retailer's late-June operating update showed how a bad situation has only worsened through 2022. Sales dropped 25% through late May, and gross profit margin plunged to 24% of sales from 35% a year earlier.

Bed Bath & Beyond was caught by surprise, like many of its peers, by quick demand shifts away from previously popular retailing categories like home furnishings. But one key difference between this company and rivals like Target is that the chain is also losing market share at a jarring pace, even as its selling expenses soar.

The rebound strategy

The company recently announced another major restructuring effort aimed at getting the business back into the black. The plan includes aggressive cost cuts, the closure of 150 additional locations, and the exiting of several unprofitable business lines. Bed Bath & Beyond is also planning to keep its better-performing Buy Buy Baby brand rather than sell it off for quick cash.

These aggressive moves aren't likely to get the retailer back into shoppers' good graces. And the financial carnage will continue.

Management is projecting to burn through $325 million in fiscal Q2, marking just a modest improvement over the prior quarter's $500 million loss. Comparable-store sales are on pace to fall 20% for the full year, including a 26% slump in Q2.

Look elsewhere

The stock price has become disconnected from those dire operating metrics at times in 2022, and it is possible that this trend continues and Bed Bath & Beyond generates quick positive returns over short periods. But it is just as likely that it will move in the opposite direction.

And any slump in the stock might stick around until evidence shows up of a sustainable rebound in place. Bed Bath & Beyond hasn't been able to engineer such a recovery through several quarters of increasingly aggressive strategic shifts.

Investors don't need to take on the risk of continued stumbles by betting on this business. There are more attractive options in the retailing space, including companies like Ulta Beauty, that are growing their store portfolios and attracting higher customer traffic.

I wouldn't bet on this retailer achieving similar results over the next few years. That's why the stock is likely to underperform the market in 2022 and beyond.

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Originally published on Fool.com

*Stock Advisor returns as of August 17, 2022

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Ulta Beauty. The Motley Fool has a disclosure policy.