Bed Bath & Beyond Inc. stock surged on Wednesday after a series of announcements, including a partnership with Kroger Co., but analysts are cautious about whether the home goods retailer will see big gains from all of the strategy moves.
Bed Bath & Beyond
will bring home and baby items to the grocery chain through the Kroger
e-commerce site and a pilot of physical shops in select Kroger locations starting in 2022.
Bed Bath & Beyond also announced the launch of a new digital marketplace for the home and baby categories. That announcement came with details about an organizational restructuring that includes the creation of a new role, chief growth officer, which will focus on opportunities externally and internally.
Finally, Bed Bath & Beyond said Tuesday that it expects to repurchase the remaining $400 million in shares authorized by its existing $1 billion, three-year program by the end of the fiscal year.
Bed Bath & Beyond stock doubled in after-hours trading after the announcements. Shares were up 19.4% in Wednesday trading.
Bed Bath & Beyond has a history as a meme stock, and the latest news may have sparked another short squeeze. But analysts are unclear about how much real growth these changes will drive.
“We see potential for incremental sales for Bed Bath & Beyond given Kroger’s vast customer base, but margins will likely be lower given the partnership with Kroger; further, we note that home goods are not a destination category at grocery stores, so conversion will likely be lower than in Bed Bath & Beyond stores and space productivity will be measured carefully in the pilot,” wrote Wedbush in a note.
Wedbush rates Bed Bath & Beyond stock at neutral with an $18 price target.
“[T]he product overlap and shopping trip desire (what products you are looking for) between Target and Ulta appears more similar (in our view) than home/baby and groceries (Kroger),” analysts said.
“We are very curious how the small-scale physical store rollout will look, as that might have more upside potential than the digital side.”
Raymond James rates Bed Bath & Beyond shares at market perform.
UBS analysts point out that the partnership allows Bed Bath & Beyond to expand in a cost-effective way. However, this plan could backfire on Bed Bath & Beyond. For example, Kroger already offers some of the items that Bed Bath & Beyond is known for.
“Thus, Bed Bath & Beyond is likely to face competitors on the platform. Also, the relationship runs the risk of cannibalizing sales from Bed Bath & Beyond’s main channels,” analysts said.
“Finally, it’s not clear how data sharing will work, so Bed Bath & Beyond could be ceding important customer relationships to another retailer.”
UBS rates Bed Bath & Beyond stock a sell with a $20 price target, up from $15.
Analysts also note that Bed Bath & Beyond announced weak second-quarter results that could put the holidays at risk.
“While Bed Bath & Beyond’s Kroger partnership and marketplace model pivot could one day prove interesting, details today are thin, there is no proof of concept, and we ultimately view the announcement as noise to overshadow an otherwise challenged fundamental outlook,” wrote Wells Fargo.
“All in, we suggest longs take profits.”
Wells Fargo rates Bed Bath & Beyond stock at underweight with a $14 price target.
KeyBanc Capital Markets maintained its underweight stock rating for Bed Bath & Beyond and $13 price target noting that October was “challenged,” the company faces tough competition and the initiatives being put into place don’t promise swift results.
Bed Bath & Beyond stock is up 12.6% for the year to date. Kroger shares have advanced 34.7%. And the S&P 500 index
is up 23.9% for the period.