First the bad news: it was bad, very bad. Now the good news: it’s still coming but not much now.
As expected – and previously previewed – the bleeding continued in Bed Bath & Beyond’s second quarter, the results of which were released Wednesday morning. Sales fell 28% — worse than in the first quarter – with same store revenues down 26%. Its net loss was $366 million – again more than in the previous quarter and more than four times its loss from a year ago – while its gross margin dropped to 27.7% of sales as it worked to sell off bad inventory at heavily discounted prices. That compares to 30.3% a year ago.
If there was any good news – actually you might call it not-so-bad news – it was that its rate of cash burn seemed to decline slightly with the amount of money it has in the bank increasing from $107.5 million in the first quarter to $135.3 million this quarter. Overall its liquidity level was about $850 million, up substantially from earlier this year thanks to new loans and lines of credit it secured this summer. But even that number was down from the previously announced level of just over $1 billion.
So, the good news? In its earnings statement and on a call with analysts this morning, interim CEO Sue Gove said Bed Bath was making progress in getting rid of its bad inventory, bringing in more national brands for the back half of the year and increasing the number of members in its new Welcome Home loyalty program to 6.4 million people.
Still, she said, “The overall results are not acceptable,” and they “do not yet reflect the strategic and financial actions we have initiated to change our performance.”
Gove, along with the brand presidents for both the Bed Bath & Beyond and BuyBuyBaby banners, said they were starting to see better results from the initial rollouts of nationally branded products into their merchandising mixes. “Although still very early, we are seeing signs of continued progress as merchandising and inventory changes begin. For example, we have seen positive sales trends where in-stock positions and visual merchandising have improved.”
Looking forward, the executives said they expect some more progress in the third quarter, already underway, but that more noticeable results wouldn’t be truly apparent until its fourth quarter which encompasses the heart of the holiday selling season. BBB expects to be break-even on its cash flow in that fourth quarter even as sales continue to decline by as much as 20% from year-ago results.
On the call, executives said vendors have been supportive of its initiatives – Gove called it “solid” — and it has improved its accounts payable status with those suppliers. It is planning a vendor summit for later in October. In addition, it is putting into place a new program to improve customer service levels in its stores to make them more than “transactional.”
Perhaps most importantly, it addressed the elephant in the virtual room – a potential bankruptcy filing – by saying it believes it has enough liquidity to get it through the back half of the year.
For a company that has had pretty much nothing but bad news for months and months, that was a glimmer of good news. With a stock off more than three-quarters over the past year, however, it needs more than a glimmer to gain the confidence of both investors and shoppers.