Bed bath and beyond (BBBY 6.85% ) released its latest results last week. And the big news is that his sales fell by more than 20% as he missed expectations in both revenue and earnings. The title would fall on the results, but since the beginning of the year, it remains up by around 19% compared to the S&P 500, which is down 8%.
Some investors may be tempted to buy the stock despite the headwinds, expecting the supply headwinds to resolve and the company to rebound in the coming quarters. But that’s only part of the problem for Bed Bath & Beyond, as there was a more troubling issue in its year-end earnings report: its cash burn.
Bed Bath & Beyond used over $900 million in 2021
The popular retailer started the last fiscal year with more than $1.4 billion in cash, cash equivalents and restricted cash. But by the end of February 26, this balance had fallen considerably:
What’s even more surprising is that there was such a sharp drop in his cash balance despite Bed Bath & Beyond reports positive cash flow from operating activities totaling $17.9 million for the year. While that’s far less than the $268.1 million the company generated in fiscal 2021, it still wasn’t burning cash from day-to-day operations. (A big reason for the discrepancy is due to Bed Bath & Beyond’s much larger net loss of $559.6 million last year, which nearly quadrupled in size.)
The company spent most of its money on stock buybacks
Buying back a company’s stock can help a company’s stock price perform better. It has the opposite effect of dilution and for some investors it may be a preferred use of cash rather than paying dividends. But a company like Bed Bath & Beyond that’s taking heavy losses and renovating hundreds of stores in an effort to boost sales probably shouldn’t be focusing on dividends or buybacks in the first place. Buybacks and capital expenditures have increased significantly over the past fiscal year:
Bed Bath & Beyond has not finished making changes to its stores. Thus, its capital expenditure should remain strong this year. It is therefore debatable whether focusing on redemptions has been a good use of its cash. Although the company says its cash is $1.4 billion, that includes cash available through a revolving credit facility. It’s not something investors would want the company to tap into, especially if it’s because it’s spent so much on stock buybacks.
Bed Bath & Beyond is a risky meme stock to hold right now
Supply chain issues and a possible recession this year could prevent Bed Bath & Beyond from bouncing back in the near future. This could put even more pressure on the company’s cash position and result in negative operating cash flow. With an uncertain future, Bed Bath & Beyond is full of risk right now. And it’s a telling sign that even amid such an aggressive buyout strategy, the company’s shares have still fallen more than 30% in the past year, while the S&P 500 is up 5%. .
Currently trading at a forward price/earnings multiple of 30, Bed Bath & Beyond looks incredibly expensive compared to walmart and Target, as the two retailers are trading at 23 and 16 times their respective future earnings. And there’s simply no reason to pay a premium for a struggling retail stock like Bed Bath & Beyond. Despite its losses over the past year, shares of this retailer could continue to fall in the months ahead.
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