Thursday, February 2, 2023

As you may have seen in the headlines lately, Bed Bath & Beyond ($BBBY) now seems destined for bankruptcy. The company has already missed interest payments on its debt, its financial performance looks awful, and analysts everywhere are predicting a filing within weeks.

Who could have seen this coming? Well, anyone who followed the company’s financial disclosures closely.

We compared Bed Bath & Beyond’s numbers to two competitors: Walmart ($WMT), representing the discount retailers competing against Bed Bath & Beyond from the low end; and Williams-Sonoma ($WSM), representing the upscale retailers competing from the high end.

First we pulled the three companies’ revenue, gross profit, and SG&A expenses for fiscal 2018 through 2022. Then we looked at gross profit margin and SG&A costs as a percentage of revenue for all three companies over those four years. The result is Table 1, below.

Ooof. Those are some pretty painful trends for Bed Bath & Beyond. Gross profit margins fell, while SG&A costs as a portion of revenue went up; that pretty much sets up the whole story. We didn’t even bother to include operating profit, since those numbers were printed in red every single year and Table 1 is colorful enough already.

Meanwhile, Williams-Sonoma saw its gross profit margins rise and SG&A as a portion of revenue fall. Perhaps that’s because Williams-Sonoma caters to a more upscale consumer, and they had plenty to spend during the pandemic thanks to government stimulus payments and (by late 2020, at least) thriving economy. Meanwhile, Walmart kept its margins essentially flat, because Walmart is so huge that it can force suppliers to keep costs low.

Many other circumstances pushed Bed Bath & Beyond to this unfortunate precipice too, of course; we don’t mean to say a quick glance at gross margins and SG&A costs can predict bankruptcy — but those quick glances can tell analysts that something is amiss, and worth further investigation.

Then you can keep digging into the data for better answers, and as always, Calcbench has all that other data too.

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