Bed Bath and Beyond has been a hot stock as of late, retail investors have referred to it as the next short squeeze. I decided to look into it and find out what the stock may actually be worth based on its current cashflows. If you’d like to download the excel workbook you can find it here.

Business Overview:

Brands:

Bed Bath & Beyond is divided into 4 distinct brands: Bed Bath & Beyond, Buybuy baby, Harmon Health & Beauty, & Decorist.

Locations:

In fiscal 2018 Bed Bath & Beyond had 1533 stores; 994 BBBY Stores,277 Cost Plus stores (Later Divested), 124 BABY stores, 81 Christmas Tree Shops (Later Divested), 55 Harmon Stores, and 2 One Kings Lane Stores (Later Divested).

In Fiscal 2019 BBBY Divested Cost Plus, Christmas Tree Shops, & One Kings Lane to focus on their core business. During this Time BBBY Stores accounted for 976 stores , BABY 126, Harmon 53.

Fiscal 2020 saw continued store closures mainly in BBBY. During this time BBBY accounted for 834 of 1020 total stores, BABY 132, and Harmon at 52.

Finally Fiscal 2021 was no different as BBBY stores increased store closures once again. BBBY accounted for 771 of 953 total stores, BABY 130, and Harmon 52.

During this time SG&A / Square foot increased from $85.41 in FY 2018 to $96.50 in FY 2021. Revenue / Square foot on the other hand remained fairly equal increasing from $279.09 in FY 2018 to $282 in FY 2021

Gross Profit Margins; Operating Income; ULFC,& Projections

Gross Margins:

Gross Margins have been declining for the past 4 years (34.1% FY 2018 – 31.6% FY 2021). BBBY has produced growing negative operating income all four years (negative EBIT 87.1 M FY 2018 to negative 245.3 M in FY 2021). ULFCF was positive between FY 2018- 2020 and has since turned negative in FY 2021.

Projections:

In the Upside Case my DCF model indicates a $40.86 share price:

Assumptions for this case: Store closures completely stop BABY stores grow at a rate of 2% every other year, revenue / square foot increases to $296.17 (4.5% increase from FY 21 & increases 1% in perpetuity), SG&A / square foot decreases to $87 / square foot (10% decrease form FY21 of $96.50 & decreases 0.5% in perpetuity)

In the Base Case my DCF model indicates a $10.58 share price:

Assumptions: BBBY stores continue to decline at a rate of 2.5% every other year (Average Decline 8% FY18-21) BABY stores increase at 1.6% every other year, Harmon stores close at a rate of 1.8% every other year, $283.42 revenue / square foot ( Average FY18-21) w/ 1% growth rate into perpetuity, $94 SG&A / square foot ( Average FY18-21) decreasing at 0.5% per year in perpetuity.

In the Downside Case my DCF model indicates a $0 share price:

Assumptions: BBBY stores decline @ 5% every other year, BABY stores increase @ 1% every other year, Harmon stores decline 2.2% every other year, Revenue per square foot of $260 with 0.5% growth into perpetuity, $103 SG&A per square foot with a 0.5% decrease into perpetuity.