Bed Bath & Beyond has responded to a critical letter to its board of directors from shareholder RC Ventures, which owns almost 10% of the company’s stock and is controlled by Gamestop Chairman and Chewy co-founder Ryan Cohen. The letter criticized the retailer’s strategy and suggested alternatives, including the sale of the company to private investors.
Bed Bath & Beyond responded to the RC Ventures letter with a statement:
Bed Bath & Beyond’s board and management team maintain a consistent dialogue with our shareholders and, while we have had no prior contact with RC Ventures, we will carefully review their letter and hope to engage constructively around the ideas they have put forth.
Our board is committed to acting in the best interests of our shareholders and regularly reviews all paths to create shareholder value. 2021 marked the first year of execution of our bold, multi-year transformation plan, which we believe will create significant long-term shareholder value.
The Wall Street Journal reported the RC Ventures letter and published a copy of it. The letter, over Cohen’s signature, includes a critique of Bed, Bath & Beyond performance:
We have carefully assessed Bed Bath’s assets, balance sheet, corporate governance, executive compensation, existing strategy and potential alternatives. While we like Bed Bath’s brand and capital allocation policy, we have concerns about leadership’s compensation relative to performance and its strategy for reigniting meaningful growth. Approximately 18 months after releasing a 170-page cover-the- waterfront plan, the Company is struggling to reverse sustained market share losses, stem years-long share price declines and navigate supply chain volatility. Meanwhile, the company’s named executive officers were collectively awarded nearly $36 million in compensation last fiscal year – a seemingly outsized sum for a retailer with a nearly $1.6 billion market capitalization.
It is important to stress that we do not place significant emphasis on any one quarter or any one year when evaluating a business. We also do not criticize a board of directors and management team when they are quietly laying a foundation for future growth and value creation. To the contrary, we are maniacally focused on the long-term. But the issue at Bed Bath is that its highly publicized and scattershot strategy is not ending the tailspin that has persisted before, during and after the pandemic’s nadir and the appointment of chief executive officer Mark Tritton.
The letter also included recommendations on corrective action:
We believe Bed Bath needs to narrow its focus to fortify operations and maintain the right inventory mix to meet demand, while simultaneously exploring strategic alternatives that include separating buybuy Baby, Inc. and a full sale of the company.
In a research note, Jaime Katz, senior equity analyst at Morningstar, said that Cohen’s point about better aligning executive compensation with performance was relevant and doing so could be helpful in terms of executive motivation.
On the other hand, Katz noted that Bed Bath & Beyond has been trying to get a turnaround started in an “idiosyncratic” market environment, so judgment of results is likely premature. Katz added that the retailer has a number of areas where improvement is possible, so that the narrowing of the strategic plan Cohen suggested may not be as important as Bed Bath & Beyond’s paying more attention to priority areas such as merchandising, real estate and marketing where it could have the best return on investment. Regarding the strategic alternatives for the Buybuy Baby banner, Katz said a spinoff could have negative effects not acknowledged in the Cohen letter, including those of scale, and cited less favorable vendor negotiations that might follow a breakup as an example.
Katz said a full sale of Bed, Bath & Beyond could be beneficial, allowing a turnaround effort focused strictly on economics without potentially disruptive Wall Street related-influence, a point that could be considered somewhat ironic if Cohen’s actions prompt a change in ownership.
