Quicky on BBBY (Q3 2020)

Jan 7th, Bed Bath & Beyond (BBBY US) reported its Q3 results for three months ending Nov 2020.

This is not investment advice. Please read the disclaimer.
I currently own shares (economic interest) in mentioned or related companies.

The stock (BBBY) was down -13% pre-market on missed earnings estimates, despite Mark Tritton (BBBY’s President and CEO) said

The consistent execution of our growth strategy is unlocking improved financial performance and we delivered a second consecutive quarter of comparable sales and profit growth. Additionally, we drove strong cash flow generation and balance sheet improvements in the third quarter and have re-initiated capital return to shareholders. – Mark Tritton (Q3 report)

Restructuring is complete. Non-core assets are sold off (increasing cash) and the company now consists of (presentation)

  • BBBY – as core brand, most stores but reduced
  • buybuy BABY
  • Harmon Face Value
  • Decorist

Online operations show strong progress. Improved online capabilities attract new customers with better purchasing metrics resulting in strongly growing online sales setting the stage for much better customer relationships and margins in the future.

High share buy backs make BBBY a leveraged turnaround. If and when the turnaround is completed, higher earnings will be claimed by less shares potentially resulting in high returns, if bought today at an attractive price.

Moody’s includes lease liabilities, from Q3 2020 presentation

Currently BBBY trades for $18.73 for a market cap of $ 2,270m. The company has net cash of $ 300m but including lease liabilities ($ 1.9bn) brings BBBY’s EV to $ 3,870m.

Over the next three years the company wants to generate free cashflow of between $ 0.5bn to 1bn (2020 investor day). In FY 2023, BBBY could generate …

  • Ebitda of $800m (I take the low end of $800m-$1bn range)
    • Depreciation and amortization (incl. leases) was $93,7m and $87.1m in the last three quarters (Q3 report). Annualized I take $360m
      • when taking this into account, we should not view lease liabilites as debt
  • Ebit comes out at about $440m
    • interest expenses of $68m (from $17m per quarter), and
    • tax payments of $78m (21%)
  • Net income comes out at $294m
    • depending on cash effects and
    • assuming investment program is mostly completed until FY 2023
  • FY 2023e FCF could be around $300m for a current M Cap of $2,300m ($2bn net of cash) or EV inc. leases of almost $4bn
    • for the (big) risks involved in this turnaround, that does not look like a screaming buy to me, but …

BBBY plans to grow its comparable sales by FY 2023 in the low to mid single digit range (of course they want to). A growing FCF stream with considerable operational leverage could be very attractive (if successful), especially if share count is reduced upfront at low prices. Competing against more nimble pure online players could end in an up-hill battle for hte company.

I hope you enjoyed this post.


Update: I sold my position with the market-open pop at Jan 11th, and missed out on a 30% rally in the next three days (another short squeeze?).

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