Analysis-Why Baby Equipment does not solve Bed Bath & Beyond’s Problems

The company’s buybuy Baby unit is the largest specialty retailer of baby products in the United States, according to GlobalData. But other retailers — including Gap Inc.’s Banana Republic. and drugstore retailer Rite Aid — offer baby items, filling the void created by the 2017 bankruptcy of Toys ‘R’ Us, the parent company of Babies ‘R’ Us.

The retention of buybuy Baby – which Bed Bath & Beyond had put up for sale under pressure from shareholders before returning in August – helped the parent company secure its recent loan of $375 million, the maximum amount it could borrow, said a person familiar with the matter. . Bed Bath & Beyond also retained buybuy Baby because it believes it will continue to grow, which may allow it to obtain a higher price later or at least modestly improve the finances of Bad Bath & Beyond in the future, said the source.

While there are many similarities between buybuy Baby and Babies ‘R’ Us, which sell similar products as part of the eventually liquidated company Toys ‘R’ Us, there are key differences that could contribute to a possible sale by buybuy Baby.

The bankers had considered selling Babies ‘R’ Us several years ago, but thought it would be too complex to part with because the chain operated primarily from the same locations as Toys ‘R’ Us stores. and operating under a lease each location, said a person familiar with the companies Bed Bath & Beyond and Toys ‘R’ Us.

By contrast, buybuy Baby operates mostly in stand-alone retail locations, which would make a possible sale of the chain much simpler, according to the source.

But at the operational level, buybuy Baby faces challenges, especially regarding its focus on clothing. Baby food and baby formula showed some of the highest growth rates, with baby food sales jumping 15.2% and baby food and drink sales nutritionals increased by 8.7% in the year ending July 30, according to NielsenIQ data.

At two buybuy Baby stores in New York City, customers recently combed through shelves filled with Adidas baby onesies, Juicy Couture onesies, Calvin Klein clothes and Nike baby bags. But both stores had few baby food options.

The limitation “weakens the status of its stores as a one-stop shop for all the needs of children”, said Neil Saunders, managing director of GlobalData Retail, unlike Amazon.com and the main retailers Walmart and Target, which “sell all kinds of products for children. under one roof.”

Still, the baby products chain is the “jewel in the crown” of the parent company, said David Klink, senior equity analyst at Huntington Private Bank.

Buybuy Baby’s revenue was $1.4 billion https://www.prnewswire.com/news-releases/bed-bath–beyond-inc-reports-fiscal-2021-fourth-quarter- results-ending- february-26th-2022-301524704 .html during the last fiscal year, ended February 26, 2022, they represented about 18% of Bed Bath & Beyond’s total revenue of $7.87 billion dollars.

Bed Bath & Beyond does not provide profitability data for Buybuy Baby, but it does report some quarterly comparable store sales data. Buybuy Baby’s comparable sales have outperformed the Bed Bath & Beyond brand in recent quarters, although both brands posted declines in the first fiscal quarter of 2022 that ended in May, according to company filings.

Buybuy Baby was profitable until at least 2021, according to GlobalData, unlike its parent company. Bed Bath & Beyond posted a loss of $150 million for the fiscal year ending in February 2021, and another net loss of $559.6 million for the fiscal year ending in February 2022. in the United States in 2021, the first increase in seven years, according to the National Center for Health Statistics of the Centers for Disease Control and Prevention, the potential market for children’s items is huge. Total spending on baby care products in the United States jumped 8% in the 12 months to Aug. 27, according to NielsenIQ, which measures in-store scanner activity.

But keeping Buybuy’s Baby unit could be at risk if its value erodes because of its continued association with its troubled parent company Bed Bath & Beyond, which is $1.4 billion in debt.

Bed Bath & Beyond, once known as a “category killer” in the home goods business, is facing a critical holiday season in which it must demonstrate that its business turnaround strategy can undo lost sales and returning customers.

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