Shares of Bed Bath & Beyond tanked 18 percent Tuesday following reports that Chief Financial Officer Gustavo Arnal died by suicide over Labor Day weekend, just weeks after being named in a lawsuit alleging he was involved in a "pump and dump" scheme.
While the shocking news may have rattled investors, Arnal's death is hardly the first jolt to the embattled home goods retailer. Just last week, the company announced plans to close 150 stores and lay off 20 percent of its workforce as part of its multi-year turnaround effort that has so far failed to right the firm's financial ship.
Against this backdrop, Bed Bath & Beyond's stock price surged 350 percent at one point in August, as excitement over activist investor Ryan Cohen's 10 percent stake in the company sparked a pile-on from retail investors. These gains were quickly reversed, however, when it was announced Cohen was selling his shares, and now a shareholder is alleging that Cohen and Bed Bath & Beyond executives conspired to pump up the price of the stock before selling.
What does all this mean for the former so-called category killer? While the lawsuit and Arnal's tragic death will likely dominate the headlines this week, the plans to downsize remain the clearest sign of the company's future prospects, said Mark A. Cohen, director of retail studies at Columbia Business School and former CEO of Sears Canada.
"They're hanging on by their fingertips, and they're struggling to get financial support to avoid being forced into bankruptcy before the holidays," he said. "So to satisfy the demands that various lenders are making, they have to reduce their [selling, general and administrative expenses]."
The company's turnaround effort began back in 2019 when former CEO Mark Tritton took over with a plan to release more private label products (or product lines owned directly by the company) along the lines of what his previous company Target had done. To do this, Tritton dug into the company's coffers to expedite the process, ultimately weakening its financial position.
"They hired a guy who attempted to make a Target-like setting almost immediately upon his arrival, which was a mistake," Cohen said. "He might have been pushed real hard to show enormous change right out of the gate because the investor community was clamoring for a rebirth of the company, but he should have resisted that."
Pivoting into private label products can take years, if not decades, he added.
Making matters worse, the turnaround effort ran smack dab into the pandemic. While many retailers benefited enormously from consumers investing heavily in home decor during the early days of lockdowns, Bed Bath & Beyond wasn't in a position to take advantage of that surge in demand.
"They couldn't sustain the demand, because they hadn't set up their supply chains in such a way that they could rely on them for the flow of goods," he said.
This situation continues to some degree to today, and one challenge facing the retailer going into the crucial holiday shopping season is whether it can get the goods that it needs from suppliers with a considerably weakened balance sheet.
As for the latest meme-stock frenzy, Cohen echoed the perspective of some industry watchers who see it as a major distraction from the company's fundamentals.
"That stupidity on the part of the Chewy guy certainly did not do anything to enhance the viability of the company going forward," he said, referring to Cohen, who founded online pet supplier Chewy. "This meme nonsense, whether you're talking about AMC or GameStop or Bed Bath & Beyond, is complete and utter bulls***. It's an enormous distraction."