Morningstar | Under Pressure, Bed Bath & Beyond CEO Temares Resigns; Shares Remain Rich
The investor group comprising Legion Partners, Ancora Advisors, and Macellum Advisors continues to pressure the executives and board of directors at no-moat Bed Bath & Beyond for the company's lengthy underperformance. In response, longtime CEO Steven Temares has tendered his resignation, replaced by board member Mary Winston on an interim basis while the search for a replacement gets underway. We expect the firm will opt for a leader with turnaround and innovation skills. With significant change pursued on the board (five new directors joined the nine-person board in 2019 and two in 2018) and in the C-suite, we believe Bed Bath is attempting to cull leaders to facilitate change. However, we’re maintaining our Poor stewardship rating, given that prior efforts have failed to stem share losses and any new efforts have yet to be announced and could take time before paying off in rising profits, resulting in return on invested capital metrics that trail our estimated weighted average cost of capital over our forecast.Furthermore, we now view the firm and investor group as on parallel but separate paths to improvement, which could distract from extracting efficiencies in a timely manner. Because both parties are seeking to improve the business by pruning the store base, rationalizing inventory, and improving the digital experience, we think it would be advisable for them to act in unison, similar to efforts at L Brands (with activist Barington Capital becoming a special advisor), as rising profitability from evolving efforts would benefit all parties. We still believe that Bed Bath is operating in a secularly declining industry, making top-line gains difficult to capture, which underlies our outlook for 3% sales declines and 3% average operating margin over the next five years. We are maintaining our $10.80 fair value estimate and, even after the mid-single-digit pullback May 13, view the shares as overvalued.
Bed, Bath & Beyond is an omnichannel retailer providing products, services and solutions for the home and life events. The company operates an ecommerce platform consisting of various websites and applications, including bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, and facevalues.com. The company sells an assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall decor), consumables and certain juvenile products.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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