Ahead of the Tape: Bed Bath Shouldn't Go Beyond -- WSJ
September 21 2016 - 3:02AM
Dow Jones News
By Steven Russolillo
Maybe Bed Bath & Beyond Inc. should take a page out of
Macy's Inc.'s playbook.
The home-goods retailer has suffered along with a host of
traditional brick-and-mortar retailers as consumers shop more
online. Margins have shriveled, same-store sales have dropped and
the stock has suffered. Recent wage pressures have only added to
the company's troubles.
Wednesday's fiscal second-quarter results are expected to
continue reflecting those woes.
But if they sound familiar, it is because Bed Bath & Beyond
isn't alone. It might learn something from department-store giant
Macy's, which made the dramatic announcement in August that it
would close an additional 100 stores, about 14% of its footprint.
While the closings are expected to hurt sales in the short run,
cost savings should help increase profitability over the longer
term.
Bed Bath & Beyond has taken a different approach. Steadily
adding to its store count, it currently has 1,533 locations across
its brands, up from 1,500 two years ago. It deserves kudos for not
overbuilding like some of its competitors, but fewer locations
might help. While its stores are still profitable, they are
becoming increasingly less so.
Bed Bath & Beyond's return on invested capital has fallen in
each of the past three years, recently dropping to 20% from 23%.
That marked the second-biggest year-over-year drop on record, with
only the decline in the financial crisis being bigger.
True, Bed Bath & Beyond's ROIC is higher than that of many
of its competitors. But it is also well below its five-year average
of 24%. And continued investment in e-commerce will likely take an
additional toll on profitability due to lower margins than
brick-and-mortar sales.
E-commerce is no slam dunk, either. The bulk of Bed Bath &
Beyond's products are commoditized. A survey by KeyBanc Capital
Market's Bradley Thomas found roughly four of every five Bed Bath
& Beyond products on its website were also available on
Amazon.com Inc., up from about half three years ago. And those
products are about 9% more expensive at Bed Bath & Beyond.
That puts even more onus on store count. For Bed Bath &
Beyond, less might be more.
(END) Dow Jones Newswires
September 21, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Macys (NYSE:M)
Historical Stock Chart
From Mar 2024 to Apr 2024
Macys (NYSE:M)
Historical Stock Chart
From Apr 2023 to Apr 2024
