As a struggling retailer in the ecommerce era, bbby stock has declined over 80% in 4 years. Activist investors recently launched a proxy fight to overhaul the board and management, sparking a rally in the stock price. With competition intensifying, bbby needs urgent reforms to cut costs, improve merchandising and develop private labels. The outcome remains uncertain, but bbby stock may attract speculators betting on a successful turnaround.
bbby stock saw huge single-day gain on activist challenge
News of activist funds seeking to replace the bbby board and CEO sparked a nearly 22% rally in bbby stock, the largest one-day gain since 2009. The funds hold under 5% of shares but believe new leadership can execute critical reforms. The market reaction signals bbby’s dire straits after an 80% stock drop despite recent profit guidance. Analysts doubt bbby can meet targets given sales declines, margin pressure and dependence on promotions.
years of decline with no sales growth and falling margins
BBBY financials reveal 9 straight quarters of comparable sales declines barring one slight uptick in 2016. Gross margins fell from nearly 40% to 33% in the latest quarter. Ecommerce growth isn’t offsetting lost store traffic. Cluttered merchandise presentation, overreliance on promotions, slow private label development and intense competition have eroded performance and profits.
criticized leadership and calls for board overhaul
Activists blame years of value destruction on mismanagement given executives’ two-decade average tenure. Despite a 70% stock plunge from 2015-2017, the CEO received over $51 million in compensation. New leadership, starting with a new CEO and board slate, is needed to drive an operational turnaround.
uncertainty whether attempted reboot comes too late
While the proxy fight sparked investor optimism, it remains unclear whether bbby can regain its footing at this late stage. Formidable rivals have pulled far ahead while bbby struggles with high costs and declining retail store sales. But big box retailers like Target and Walmart have adapted, providing some hope for the company if reforms kick in.
Despite significant challenges facing the retailer, bbby stock offers upside potential for enterprising investors should the activist investors succeed in turning performance around. But considerable uncertainty surrounds the proxy battle and bbby’s competitiveness after years of strategic missteps.