It was just over a year ago that the so-called meme stocks caused a stir on the stock market. This label was given to securities at the beginning of 2021 that suddenly went through the roof. The price rally was triggered by Internet forums, in particular the platform Reddit. Bed Bath & Beyond was one of the companies hyped up there. The viral hype surrounding the US retailer peaked at the end of January 2021 at a price of USD 53.90. At this point, the stock market value of the provider of a wide range of household articles had surged by 150% within three weeks. Although the share was repeatedly caught up in meme speculation in the meantime, it has come down to earth one year later. At around USD 16, the Nasdaq stock is even trading below its early 2021 level (see chart).
The focus is now once again on the operational development of the company, which was founded in 1971. In the year of its 50th anniversary, management has kicked off the transformation of Bed Bath & Beyond. On the one hand, the team around CEO Mark Tritton started working on their stores interior. Whereas the stores previously gave the impression of being more of a general store, they are now to be much tidier and more modern. In the recently completed fiscal year 2021 (as of February 28, 2022), the company planned to remodel around 130 stores in the USA and Canada. At the same time, the CEO is focusing on digitization. Among other things, he pushed this sales channel with more modern and user-friendly websites or an item search supported by artificial intelligence. Bed Bath & Beyond already generates a good third of its revenues digitally (see chart). In the baby products business, the online share is more than half.
At this point, the cooperation with Kroger should help the company. Bed Bath & Beyond is allowed to offer popular items on the online platform of the largest grocery retailer in the USA and also to set up its own stores in selected Kroger stores. The strategic successes could not change the fact that the CEO had to reduce the forecast for 2021 in January. Instead of the previously targeted USD 8.1 to 8.3 billion, revenues are expected to reach USD 7.9 billion. Tritton pointed to supply chain issues. Inventory bottlenecks reduced sales by USD 100 million in the third quarter alone. The top manager also had to row back on the earnings side. Whereas he had previously held out the prospect of a tidy surplus, the CEO now expects a black zero at best for the past fiscal period. Despite the profit warning, the Bed Bath & Beyond share has continued its consolidation in recent weeks.
If the sideways trend remains, softcallable barrier reverse convertibles could play to their strengths. Leonteq has launched two variants of the yield-optimizing structure based on the US retailer. The comparatively high volatility of the underlying is clearly reflected in the terms of the new issue: In the product currency CHF, investors can expect a fixed coupon payment of 16% p.a.. In the USD-denominated counterpart, the guaranteed payout is 200 basis points p.a. higher. Bed Bath & Beyond enters the one-year term for both versions with a barrier at 55% of the initial level. The thick cushion should not hide the fact that the share is not likely to be immune to strong fluctuations in the future. Should the barrier be breached, the partial protection will expire and the redemption of the nominal value would be linked to the performance of the underlying. Please also note the soft callable feature which may lead to early termination and redemption of the Barrier Reverse Convertible.
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