Bed Bath Beyond stock downgraded by Baird amid retail rally

The shares of Bed Bath Beyond fell Tuesday after the company's stock was downgraded by Baird.

The retailer's stock has an underperform rating and $4 price target despite a rally fueled by retail investors Monday.

Baird analyst Justin Kleber wrote a note to clients Tuesday in a note to clients that the frenzied move 100% of the public float traded on Monday has been driven by non-fundamentally focused market participants.

With market share losses accelerating and cash burning by BBBY, fundamental risk reward looks unattractive in our view. Bed Bath Beyond shares are down more than 36% year to date as of the time of publication.

The downgrade comes after Chewy.com co-founder and GameStop chairman Ryan Cohen has been working to turn Bed Bath Beyond's struggling business around after his investment firm RC Ventures acquired a 9.8% stake in the company in March.

In June of this year, the company announced that former Bed Bath Beyond CEO Mark Tritton would be leaving his position. Under Tritton's leadership, Bed Bath Beyond remodeled stores, closed underperforming stores and introduced a private label line called Owned Brands as part of a wider transformation strategy.

The company saw its net loss widen and sales fall during the first quarter of 2022 due to soaring inflation, a rapid shift in consumer spending patterns and declining demand in its Home sector. BBBY also confirmed to FOX Business that it would discontinue the Wild Sage brand of home goods the company launched in June 2021.

Kleber said that supply chain disruptions exposed BBBY's antiquated infrastructure and wreaked havoc on the business at the same time that the company's pivot toward owned brands has not resonated with customers.

The interim CEO of the company is looking for a permanent replacement, according to independent board director Sue Gove. Mara Sirhal, Bed Bath Beyond's general merchandise manager of health, beauty and consumables, and Laura Crossen, senior vice president of treasury, tax, and finance transformation, have been tapped as chief merchandising officer and accounting officer.

Gove said Bed Bath Beyond would focus on driving traffic to its stores and digital platforms in the near term. The focus will be on stabilizing its supply chain, reducing costs, lowering inventory and strengthening its balance sheet in the long term.

Interim CEO Sue Gove is focused on driving traffic via marketing and a new loyalty program, but we believe that turning the trajectory of fundamentals will be a tall order given the current macro sector backdrop, Kleber warned.

Gove has suggested that a potential sale of the buybuy Baby business is an option on the table as the company explores strategic alternatives for the division.

Kleber added that such a transaction would definitely buy BBBY time as it looks to shore up its balance sheet and stem the decline in traffic sales. The board has mentioned interest in the banner, but prior talk of a multi-billion dollar valuation seems overly ambitious for a business with $100 M of run-rate EBITDA. In the second half of the fiscal year 2022, Bed Bath Beyond executives expect same-store sales to improve sequentially.