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Bed Bath & Beyond Stock Turns Lower Following Short Squeeze Surge

Suggestions of a Reddit-fueled short-squeeze have shares in struggling home retailer Bed, Bath & Beyond back on the move Tuesday.

Updated at 1:33 pm EST

Bed, Bath & Beyond  (BBBY)  shares slumped lower Tuesday amid what could be renewed retail trading action in the struggling home goods group and bets on a near-term sale of its lucrative buybuy Baby division.

Bed, Bath & Beyond, whose shares have more than doubled over the past month, posted weaker-than-expected first quarter sales in late June and announced the exit of CEO Mark Tritton amid push from several activist investors -- including GameStop  (GME)  chairman Ryan Cohen -- to explore the sale or listing of buybuy Baby.

Tritton had called the division an "important cornerstone" of the group's turnaround plans, and said he had hoped to increase BABY sales to more than $1.5 billion over the next three years, thanks in part to November 2021 marketing deal with Kroger Co (KR) .

The stock's recent surge, however, is more likely linked to renewed retail interest and a so-called 'short squeeze', where buyers take advantage of investors that are betting against the stock. Recent data from S3 Partners suggests short interest comprises as much as a third of the outstanding shares of Bed, Bath & Beyond.

Data from the website, which tracks real-time mentions on stocks within Reddit's r/wallstreetbets chatroom, indicated that Bed, Bath & Beyond is now the most-discussed stock among users, with activity up 46% from yesterday to around 7,400 individual posts.

Short sellers are investors who bet against a certain stock by selling it by borrowing them from another investor and selling them on various exchanges or platforms in the hope of buying them back at a lower price in the future and pocketing the profits.

Wall Street pros argue that short sellers provide several key functions in the market, including price discovery and additional liquidity, while critics counter that some rely on "predatory" practices that can damage companies and wipe-out small investors.

Bed, Bath & Beyond shares were last seen marked 21.25% lower in early afternoon trading Tuesday to change hands at $9.00 each. 

Bed Bath & Beyond posted an adjusted loss for the three months ending on May 28, the group's fiscal first quarter, of $4.49 per share on revenues of $1.46 billion and a 27% slump in comparable sales.

Bed Bath & Beyond said it would accelerate markdowns of its existing inventories "in order to right-size inventory levels commensurate with the declining sales trends."

Incoming CEO Gove said the group suffered "an acute shift in customer sentiment" that has "materially escalated" into the summer months.

"This includes steep inflation and fluctuations in purchasing patterns, leading to significant dislocation in our sales and inventory that we will be working to actively resolve," she said. "The simple reality though is that our first quarter's results are not up to our expectations, nor are they reflective of the Company's true potential."