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Oct 11, 2019

Bed Bath & Beyond surges as new CEO could crib from Target's playbook

Bed Bath & Beyond rallies as it taps Target's top merchant as CEO

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Bed Bath & Beyond Inc. shares soared Thursday after the company named Target Corp.’s head merchant Mark Tritton as its new chief executive officer.

Analysts were broadly encouraged by the announcement given Tritton’s successful tenure at Target. Loop Capital’s Anthony Chukumba cited the new CEO’s “retail/consumer pedigree” and merchandising and private label development “experience and expertise.”

Morgan Stanley’s Simeon Gutman said he was surprised by the appointment since Tritton is more well-known than other names investors had speculated were potential considerations. Tritton wasn’t on the radar, he said. The appointment earned the stock an upgrade at Telsey Advisory Group.

Analysts also cautioned that a Bed Bath & Beyond turnaround won’t be easy since there’s little room for error following a long period of sales erosion.

The stock climbed as much as 26 per cent, the biggest intraday advance since March, and is at the highest intraday since June. Shares have now erased their year-to-date loss and our up about 10 per cent, after five straight years of negative performance.

Here’s what analysts are saying after Tritton’s appointment:

Telsey Advisory, Cristina Fernandez

Fernandez upgraded the stock to outperform from neutral.

While the analyst admits that a Bed Bath & Beyond turnaround won’t be easy, given its “market share losses and declining profitability in recent years,” she believes Tritton will “improve the company’s performance by implementing many of the strategies that have succeeded at Target.”

Some changes that may be implemented at Bed Bath that were executed at Target could include:

  • Refreshing the merchandise assortment with new goods, private labels, and exclusive brands
  • Enhancing the merchandise’s visual appeal and the in-store experience
  • Improving the integration of e-commerce and in-store -- known omni channel -- to include in-store pickup for online purchases, faster two-day delivery, and self-checkout.

Fernandez boosted her price target to US$16 from US$14.

Here’s what Bloomberg Intelligence had to say:

Tritton is a “solid addition with the skills to improve private-label product and brand relevancy, which we think should help revive same-store sales.”--Analyst Seema Shah; click here for note

Morgan Stanley, Simeon Gutman

“The unexpected announcement of Mark Tritton -- a credible leader and strong merchandiser -- as incoming CEO is a clear win,” Gutman wrote.

Tritton adds “considerable credibility” to the company’s merchandising revamp, he said, adding he thinks the new CEO will, for the most part, “stick to the board/activist approved transformation plan.” There are still opportunities, however, to “import ideas” that worked at Target.

While the stock could move above Gutman’s target of US$12 in the near term, “concerns will linger” and “execution risk is high.” He maintains his rating at equal-weight.

Loop Capital, Anthony Chukumba

“Our only hang-up is Mr. Tritton’s lack of prior CEO experience, but we believe BBBY’s reconstituted board of directors has plenty of experienced executives who can guide him through the transition,” Chukumba said in a note to clients.

There is plenty of “low-hanging fruit,” such as cutting costs and scaling back non-core areas of the business, he said, but improving merchandising and the supply chain will be the “crucial” part of the company’s long-term success.

The analyst maintains his hold rating and US$10 price target, seeing no reason “to get off the sidelines” until there is a better picture of Tritton’s turnaround plan.

Jefferies, Jonathan Matuszewski

While Tritton’s “extensive background” in private-label merchandising will be helpful for the turnaround, “visibility remains low given execution risk inherent in an early-stage transformation with no notable inflection in fundamentals yet,” Matuszewski wrote.

“Our understanding is that Tritton was a notable contributor to strengthened top-line at Target,” he said, while noting that he joined “when a clear strategy in place was working” and amid a deep pool of talented executives.

The analyst’s rating is hold and his price target remains US$11 per share.

Wells Fargo, Zachary Fadem

Naming of Tritton “checks many of the right boxes” and delivers a “near-term blow”‘ to the bear case, although “fundamental challenges remain,” Fadem wrote.

Tritton’s skills, including reviving Targets’s private label strategy with the launch of more than 30 exclusive brands, will be “crucial” at the home-goods retailer.

Given the share appreciation on the appointment, Fadem believes the market is “putting the cart before the horse.” He rates the stock underperform, with a price target of US$10.