The bankruptcy of Bed Bath & Beyond provides a $5 billion opportunity.

Bed Bath & Beyond Inc.

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Bed Bath & Beyond Inc.‘s liquidation strategy may reduce one source of U.S. retail profits in the short run as the market floods with liquidated home and baby products, but it leaves competitors with a long-term prize of about $5 billion in annual income.

Target Corp. is likely to benefit once the deep discounts from Bed Bath & Beyond and Buy Buy Baby’s closing deals expire, according to Piper Sandler analyst Edward Yruma in an April 24 note to investors. He expects Target to increase annualized earnings by around 40 cents per share in the long run. Amazon.com Inc. and Walmart Inc. will also see an increase in sales.

The liquidation will hasten market-share gains made by competitors at the expense of Bed Bath & Beyond for years. Once hailed as a category killer in home goods, the store has seen yearly sales fall to little over $5 billion, down from more than $12 billion in the fiscal year that ended in early 2019. After declaring bankruptcy over the weekend, Bed Bath & Beyond plans to close 360 stores and 120 Buy Buy Baby locations by June 30.

While Bed Bath & Beyond has not released financial data for the most recent fiscal year, Holly Etlin, the company’s chief restructuring officer, stated in a court filing that sales in the fiscal fourth quarter decreased by about $1 billion.

This would imply a little more than $1 billion in income for the time, bringing the annual total to over $5.2 billion. Bed Bath & Beyond estimates that the total net proceeds from all remaining sales will be around $718 million.

According to Michael Baker, an analyst at D.A. Davidson & Co., Minneapolis-based Target is poised to gain $500 million to $1 billion in additional sales as a result of the hole left by Bed Bath & Beyond.

That would still be a modest portion of Target’s $19.5 billion in home furnishings and decor sales in 2022, which was a down year for the category. Consumers shifted away from discretionary goods last year after stocking up on them while locked at home for much of 2020.

 

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