Bed Bath & Beyond stock rises despite dismal Q2 earnings

Yahoo Finance Live anchors discuss second-quarter earnings for Bed Bath & Beyond.

Video transcript

BRIAN SOZZI: Welcome back. The hottest ticker on the Yahoo Finance platform this morning is now a Bed, Bath & Beyond after the company reported its latest earnings report this morning. You might be wondering, guys, why is this stock up after another challenging quarter. Probably a couple of reasons here that I highlighted.

First, Bed, Bath & Beyond talking about how sales in the departments where they start to flow in some household name brand merchandise that the consumers have always wanted from the company, those sales appear to be trending positively.

Also noting potential liability management transactions. Basically, that sounds like they're going to try to buy back their debt and lower the interest rate on some of their debt. And then last but not least, they reiterated their 2022 outlook.

So you put that together, you understand that the pop in the stock here. But guys, this is not a good quarter by any stretch of the imagination. When you see a retailer sales down 28% ahead of this holiday shopping season, that is dismal. They are entering the holidays with only $132 million of cash on their balance sheet. It's just, it's atrocious.

BRAD SMITH: Yeah, I mean, they're going to have to take a lot of what they call cost optimization actions. And that's going to go into the second half of fiscal 2022 they had mentioned. But think about the different categories here that this company relies so much on. And they saw comp sales decrease in the high teens. Even in Buy Buy Baby, comp sales decreased high teens compared to the growth of high teens during the fiscal 2021 second quarter.

And so even in a category where they had seen so much of that strength, they're still seeing that rug get pulled out from underneath of them as well. And on the comp sales front since I'm talking about that, declined 28% in stores. Digital saw 22% comp store-- or comp sales decline as well. And so it's not just one part of the business that they got fixed. It's so much of it, as well as the corporate culture at the same time.

BRIAN SOZZI: What also bothers me is that despite the sales decline, inventory levels year over year basically flat or unchanged. So what that means at its very basic level, go into a Bed, Bath & Beyond store, and you can go on this-- some of their merchandise collections and go like, [BLOWING]. Just blow on the products. And you can wipe the dust off in real time. Nobody's buying this stuff, and the stores are just filled with private label junk or slop that nobody's buying.

They have to cut the prices on this stuff. You go in there now, they're only offering 50% to 60% off. That's not enough. If they want to blow out this inventory and get back to Bed, Bath & Beyond more household goods. They need to be 80%, 90% off. It's going to hurt, but they have to get rid of this stuff.

JULIE HYMAN: Well, but people also have to go in the stores to see that the stuff is on sale.

BRIAN SOZZI: Well, that, too.

JULIE HYMAN: So that's part of the issue as well. And you say they stuck with the forecast. They didn't change the forecast. But the forecast is for 20% decline in--

BRIAN SOZZI: Yes, it's not good.

JULIE HYMAN: --comp store sales in the second half of this year. So the outlook is definitely not good. You look at a couple of the maybe technical effects also that would be driving the stock higher. This is a stock where 39% of float is shorted. Could you get a little bit of a short squeeze engineered or encouraged by folks on Reddit who have been fans of the stock? Maybe. We've seen stuff like that happen before.

You also consider that 71% drop, 72% drop in the shares over the past year. Maybe you get people coming in and saying the worst is over. I don't know who those people are--

BRIAN SOZZI: Not me.

JULIE HYMAN: --on a rational basis, but, you know, maybe that's what's going on.

BRAD SMITH: Well, it's based on the brands that would bring people into the stores. And the brands right now in the retail category are looking to see how they can go more direct to consumer or where they can realign their partnerships on the wholesale front. And what does that mean? That means going to a partner that has a better e-commerce presence and the availability to have more conversions of your products actually getting into homes and sell through there.

And Bed, Bath & Beyond, if they continue to see their own deterioration, the overhead has been mismanaged for years. They've got too much square footage that they operate. And then additionally, you've got so much product that it overwhelms people at some points in time to the point where, now, you've got enough of the other retailers or manufacturers, I should say, that are looking to go directly to the consumer or just have a more valuable relationship that themselves may say, well, what's the value of this?

What's the value of being in a Bed, Bath & Beyond store right now? And if they can't answer that question for themselves, then that's also going to hit on the number of consumers that want to go into those locations.

BRIAN SOZZI: Maybe, Brad, they just need to start selling Nike and Gucci clothes. That would get me going there.

BRAD SMITH: Nike won't go in Bed, Bath & Beyond.

BRIAN SOZZI: No?

BRAD SMITH: No. No, they're pulling out of Macy's. Why would they go there?

BRIAN SOZZI: No, you're right. You're right. Sorry.

JULIE HYMAN: OK, so that's Bed, Bath & Beyond.