Bed Bath & Beyond: How stock buybacks undermined the company
We all know that the Bed Bath & Beyond (BBBY) retail chain is in such big trouble that it’s likely to file for bankruptcy. But what most people don’t know is this: A major reason the company is so messed up is that when it comes to its own stock, the company violated a key rule of retailing — buy cheap.
Would you believe that Bed and Bath has spent more than $11.7 billion to buy back almost three quarters of its own stock? At an average cost about 15 times the stock’s current price? And that only a couple of months ago, when it was already in desperate financial shape, it kept buying back its shares? (For no rational reason, as far as I can tell.)
Well, you should believe it, because it’s all true.
According to its financial filings, Bed and Bath has spent $11.73 billion buying back its own stock since 2004 at an average cost of more than $44 a share. The stock’s price, when last I looked, was a smidge under $3.
In all, the company has bought back more than 265 million of its own shares, almost three times as many shares as the 90.7 million it had outstanding on Nov. 26, its most recent reporting date.
And as I said, the company kept buying back its own shares late last year even after it had become clear that its finances were deep in it.
During the three months that ended in November, a period during which it was scrounging for capital to keep itself afloat and trying to execute a turnaround plan, the company shelled out $2.68 million — more than $8 a share, more than 2.5 times its current price — to buy its own stock.
Wall Street loves stock buybacks, which it calls “returning money to shareholders.” By reducing the number of shares outstanding, buybacks can enhance a company’s stock price by raising its earnings per share. Higher earnings per share generally translate into a higher share price.
But spending lots of money to buy back stock can backfire — badly — if a company ends up needing the money that it spent to goose its share price. Bed and Bath is a classic example of buybacks gone bad.
I was critical of the company’s buybacks in an article that I wrote for Yahoo Finance months ago.
Why am I writing about this again? Because Bed and Bath’s self-destructive buybacks make me deeply angry.
Here’s why. I live in suburban New Jersey, not far from Bed and Bath’s headquarters. So to me, Bed and Bath isn’t just another business story. It's personal. It’s a local company that seems to be going down for the count — taking lots and lots of jobs with it. All because of financial foolishness that was intended to prop up the share price, but instead ended up undermining the company.
Sure, companies like Amazon began eating Bed and Bath’s lunch years ago because it kept building store after store and slighting online commerce because it thought the Internet was a passing phase.
And sure, this has been a difficult time for lots of retailers.
But if Bed and Bath had spent a few hundred million dollars less buying back stock, it would have a lot more financial staying power. Staying power that it could sure use now.
I asked Bed and Bath to give me its version of events. However, I didn’t hear back. But those buyback numbers tell the story. And boy, is it an ugly one.
Allan Sloan, who has written about business for more than 50 years, is a seven-time winner of the Gerald Loeb Award, business journalism’s highest honor. He’s won Loebs in four different categories over four different decades for five different employers.
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