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Bed Bath & Beyond Shares Plunge After Surprise Q4 Sales Update

New CEO Mark Tritton cautioned investors that his turnaround plans at Bed Bath & Beyond will "take time" as the retailer revealed weaker-than-expected holiday sales.

Bed Bath & Beyond Inc.  (BBBY) - Get Bed Bath & Beyond Inc. Report shares plunged to a four-month low Wednesday after it said holiday sales slumped and profit margins narrowed as new CEO Mark Tritton attempts to revive the  struggling home furnishings retailer.

Bed Bath & Beyond said comparable sales for the first two months of its fiscal fourth quarter, which ends in February, fell 5.4% from last year, which Tritton put down to a lack of inventory in key categories. Gross margins narrowed by around 3%, the company added in an ad-hoc update after the close of trading Tuesday, thanks in part to promotional sales designed to win back market share from rivals. 

"We are experiencing short-term pain in our efforts to stabilize the business, including the pressures of store traffic trends coupled with our own executional challenges," Tritton said. "However, we did achieve a notable positive shift in sales in our digital channels during this period, with growth of approximately 20%. I believe we can solidify this growth, while also addressing the broader stabilization of our business."

"We are beginning to make bold and broad-based changes to modernize our business and better serve our customers," he added. "Our ability to achieve this and change the trajectory of our current results will take time, as we remaster the fundamentals of merchandising, pricing and promotion, and focus on our digital channels as part of our go-forward strategy." 

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Bed Bath & Beyond shares were marked 20.5% lower in mid-day trading Wednesday to change hands at $11.80 each, a move that would still leave the stock with a six month gain of around 32%.

Tritton, a 30-year retail industry veteran who has been credited with major improvements at Target TGT and Nordstrom, joined Bed Bath & Beyond late last year, replacing the outgoing Mary Winston shortly after the Union, N.J., retailer trimmed its full-year profit guidance following weaker-than-expected same-store sales for its fiscal second quarter.

Tritton promptly scrapped the guidance in early January, however, after the company posted a surprise loss of 31 cents over its fiscal third quarter as revenues fell 9% to $2.8 billion and same-store sales slumped 8.3%.

"As we consider the potential for an improvement in fundamentals, we await new Tritton’s further assessment of the business and operating plan, and we will closely monitor trends looking for improvements in sales," said KeyBanc Capital Markets analyst Bradley Thomas, who lowered his price target on the stock by $2, to $16 per share, with an overweight rating following last night's guidance update.

"Looking ahead, competition remains intense (from both online and physical retailers), and it will take significant work to reposition the business to remain viable in the LT, particularly considering the poor sales trends in 2019," he added. "Ultimately, however, in the NT and MT, we see more reasons for incremental enthusiasm in the business than downside risk."