- Bed Bath & Beyond lacks an economic moat to guarantee the protection of competitive advantages developed over its 46-year existence.
- The company’s stock repurchase program since 2014 is perhaps a case study in how not to seek value in the stock market.
- But fundamentally, it is difficult to argue the time-tested merchandising prowess of this specialty retailer.
- As contrarians, we are intrigued by the market's overwhelmingly bearish view on the stock.
- Nonetheless, does the proverbial crystal ball project the promise of digital commerce or the burdens of big box retail?
According to Chief Executive Officer Steven Temares, online sales represent only 15 percent of Bed Bath & Beyond's current revenues, suggesting there is still room for significant growth. However, the company leases substantially all of its existing stores, eliminating any quasi-real estate investment trust valuation to the BBBY equation. To the contrary, the company's warehouse space - in support of its customer-facing digital channels - represents a cost-effective 16% of the store space.
Thus, the market is debating whether BBBY is a value play opportunity as it transitions to digital sales or a value trap dinosaur from the retail big box-dominated late twentieth century.
We think the company's sound fundamentals and a sizable margin of safety may outweigh the overwhelmingly bearish market consensus.
Initially suggested by a member of MSVI on Marketplace, here is Main Street Value Investor's (MSVI) flagship research on Bed Bath & Beyond.