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The Ratings Game: Bed Bath & Beyond is reducing store hours and turning down the air conditioning to cut costs, analysts say

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Bed Bath & Beyond Inc. is turning down the air conditioning at its stores in order to save cash, according to Bank of America analysts who conducted channel checks and store visits.

Other measures the company is taking include reducing store hours, with locations opening at 11am rather than 10am, cutting worker hours and canceling or postponing store remodels.

“[W]e believe that Bed Bath & Beyond is trying to quickly trim expenses to align costs with comp declines,” analysts led by Jason Haas wrote in a note published Wednesday.

MarketWatch reached out to Bed Bath & Beyond, which did not comment on any cost-saving steps.

Bed Bath & Beyond
BBBY,
+3.62%

is scheduled to report first-quarter results on June 29. Analysts note that on the last earnings call, Bed Bath & Beyond said quarter-to-date comparable metrics were down about 20%.

“We don’t believe comps have since improved,” Bank of America said.

Analysts also highlight elevated promotions, including up to 50% off of bedding and free same-day shipping, which usually costs $10.

Bank of America also raised liquidity concerns.

“In FY23, we expect Bed Bath & Beyond will burn another $300 million of cash and pay down its $300 million 3.749% notes due August 2024. This will leave Bed Bath & Beyond with total liquidity of roughly $439 million by the end of FY23. Assuming another $300 million of cash burn in FY24, this would imply $139 million of liquidity by the end of FY24,” analysts said.

“Bed Bath & Beyond’s liquidity could dry up more quickly if performance worsens faster than expected, management doesn’t cut capex or vendors shorten payable terms.”

Bank of America rates Bed Bath & Beyond stock underperform with a $3 price objective, down from $8.

Bank of America was one of at least three research groups to cut Bed Bath & Beyond’s price target.

UBS moved its price target down to $5 from $12 and maintained its sell stock rating.

“We believe rapid inflation, falling consumer sentiment, demand pull-forward, and
supply disruption likely drove significant pressure on Bed Bath & Beyond’s 1Q results,” analysts led by Michael Lasser said.

Analysts, who also conducted their own checks, say more markdowns could be on the way as inventory levels climb.

Read: Department stores are at risk from an ‘unprecedented’ level of excess inventory, analysts say

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“[W]e see significant uncertainty on the business’s near and intermediate term earnings power in light of macro and other challenges. This will likely keep the stock under pressure for the foreseeable future, in our view,” UBS said.

Bed Bath & Beyond stock is down nearly 69% over the past three months, trading at $6.86 on Thursday afternoon.

“While free cash flow pressure should ease in the 2H as inventories normalize, this benefit could prove less material should Bed Bath & Beyond instead find itself over-inventoried amid slowing demand,” wrote Wedbush analysts led by Seth Basham.

Bed Bath & Beyond had been under pressure from activist investor Ryan Cohen and RC Ventures LLC to explore alternatives for the Buy Buy Baby chain. The two have since reached a “cooperation agreement.”

Wedbush warns that selling Buy Buy Baby would yield a steep tax liability. UBS says it will be looking for an update on Buy Buy Baby, while Bank of America says a sale of the chain is “increasingly unlikely.”

A company spokesperson called attention to the launch on Thursday of Welcome Rewards, a loyalty program that spans the namesake banner, Buy Buy Baby and Harmon. Shoppers can join for free, or pay $29 annually to move to the Welcome Rewards+ tier, which offers enhanced discounts, points and delivery benefits.

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