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Buyback Bloodbath & Beyond: How BBBY Lost $1.7 Billion Buying Back Its Own Stock
We have been following the slow at first, and now very fast-moving disaster that is Bed Bath And Beyond with close interest for years, at first with detached amusement (Bed, Bath & Beyond Buybacks Authorizes Another $2 Billion In Stock Repuchases) and increasingly with amazement, as the company launched an unprecedented stock buyback spree to mask the relentless deterioration in its underlying business.
Last September when looking at the chart showing BBBY's buybacks vs its capex expenditures, shortly after Q1 BBBY issued $1.5 billion in senior unsecured Notes promptly using $1 billion of this to buyback its own shares, we presented the following three questions:
- WTF
- Is the entire management team about to quit, but not before cashing out of their equity-linked securities first?
- See 1.
Reading between the lines, what we asked was "what glaring business weakness is the management team covering up so earnestly with this constant stream of buybacks?"
To be sure, in 2015's BBBY buybacks slowed to a trickle as the update chart below shows...
... which led to two things: i) a relentless decline in the BBBY stock price over 2015 as the management team no longer had the wherewithall to defend it, and ii) last night's inevitable guidance hammer, in which the management team provided an "update of anticipated comparable sales." It was a bloodbath:
Bed Bath & Beyond Inc. (NASDAQ: BBBY) today announced preliminary information for the fiscal third quarter ended November 28, 2015, which included the Thanksgiving holiday as well as the following two shopping days (Black Friday and Saturday), and provided an update on anticipated comparable sales from the beginning of the fourth quarter through Christmas.
Although it is still in the process of its quarterly financial close, the Company now estimates net sales for the fiscal third quarter to have been approximately $3.0 billion, an increase of approximately 0.3% from the prior year period. The Company had previously modeled net sales to increase by approximately 1.8% to 4.0%.
The Company now estimates third quarter comparable sales to have decreased by 0.4%, or relatively flat on a constant currency basis(a non-GAAP measure). The 0.4% unfavorable impact of foreign currency fluctuations is consistent with its previous model. Including the impact of foreign currency fluctuations, the Company had previously modeled comparable sales to increase between 1.0% and 3.0%.
Based on the lower-than-modeled sales results in the third quarter, the Company now estimates fiscal 2015 third quarter net earnings per diluted share of approximately $1.07 to $1.10, as compared to the Company's previous net earnings per diluted share model of approximately $1.14 to $1.21.
Perhaps it was too warm... or too cold? Or perhaps it was something far simpler: as we reported two weeks ago, using BofA credit and debt card data, November was the first month to see an annual decline in retail sales since the recession.
In other words, the US consumer is indeed tapped out, as BBBY's earnings preview confirmed. The result: BBBY's stock just tumbled to levels not seen in nearly 5 years,.
But what is more relevant is that now we know precisely why management, not just BBBY's but every other company, was so eager to engage in record buybacks. Without them, the stock would have been at today's price long, long ago.
How many buybacks? The chart below shows the average buyback price since the last time BBBY traded at $49. The answer: $67.44.
Or, in return terms, since the start of 2011, BBBY's management spent $6.5 billion to repurchase its own stock, while leverng up to the hilt. It has so far generated paper losses of $1.7 billion: a return which would have gotten any trader or hedge manager not only fired but expelled from the industry for ever.
Putting these numbers in context, BBBY repurchased 80% of its current market cap, which as of this moment is $8.1 billion. One wonders where the stock price would be without this Fed-enabled feat of financial engineering...
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Blood Bath and Beyond!
This is just another common trick. You lower the expectations prior to your next quarter reports ... then ... you will beat the expectations and the stock will be soaring :)
Will Home Depot be next?
Hold it off to tomorrow, would you?
I have an online order to pick up.
Apple will be next. Apple share buyback is over $100 billion.
Who the fuck could have seen this coming?
ray charles, stevie wonder, jose feliciano
Fleas on my dog...
https://www.youtube.com/watch?v=5Rze6TGMF9k
This is the end, if the price of their stock still crash even when they pump their own stock...
But the most important thing on wall street occurs -- the mangaement gets to cash out their options and bonuses before the stawk crumbles.
Just lay off a few moar people and buy moar shares. If they liked it at $80 they'll love it at $50.
I've watched this stock in amazement over a number of years, even applying the Peter Lynch method of actually going into one of their stores. I could see nothing there I would buy and all of it over priced.
Who the F&^K buys this stuff???
I never bought the stock, looked to short it, but more often than not came out of those shorts frustrated.
Business fundamentals work over years, shorts work over, what, thirty, sixty, ninety days?
And that was before HFT, EFTs, and the Fed's cash flood. Now the stocks are just actors in a drama, and it all goes according to the script.
In terms of new age retail they are a perfect petri dish to watch.
All that crap comes from China by the container ship full. Their target demo is 20 or 30 somethings.
The product is kisch 'asperational' - with some dime store gag gifts.
They are massively over inventoried, massively over leveraged - and are a prime candidate for Amazon to skin alive.
Bent over, Boned and Buttfucked.
Who the F&^K buys this stuff???
Well, here you have a business that's dependent on household formation, primarily, and is priced such that they depend on those households to be well-off midde class (because the 1% isn't going to BBB for their stuff.)
Take a look at the household formation charts. And the middle class as a share of the population charts. BBB belongs in the Sears/JC Penny/Radio Shack category of retail stores with awesome potential in the future. /s
Funny Story, But True.
Where that BBBY has a store today, along with Old Navy, Panera, AT&T "wireless" WAZ a paved over Abandoned LOWES location. Prior to that it was farmland.
So the LOWES moved to a more advantageous location...3 miles down the road and paved that farm over likewise. Suddenly OMG 1/4 mile away a HomeDepot paved over another farm.
That Original LOWES site SAT for 3 years VACANT. Building, paved parking. No wheat, not corn, no green beans, no cucumbers, no tomatos, no peaches, no apples. Just blowing plastic bags.
That Empty lot was legacy to the 3 Local Hardware/Lumber yard that the first abandoned Lowes put out of business.
So Where DID the Middle Class go?????
ASK Larry Summers.
One day in the not too distant future, some entrepreneurial spirit will buy that old Lowes, and install hydroponics within and produce veggies like the days of yore.
There are two rules upon entering the "casino."
NO SHORTING ALLOWED...EVER!!!
You can never overcome stock buybacks, or the stupid/ignorant factor of management, especially when it is in their own conflicted interests.
Class dismissed.
Bed Bath and Beyond always reminded me of "The Scotch Boutique" skit from the early days of SNL about a mall specialty store that sold only Scotch Tape.
How much lilac scented bath oil do you really need?
I thought it was a spatula store.
Spatula City!
Clever scheme .... outed by the tylers, will the C-suite dudes now have to refund their winnings ?
... don't think so
The canary in the Bedroom and Bathroom.
I don't worry too much about the Russians or the Chinese or the fucking ragheads taking away my comfortable lifestyle. I worry about those bastards on Wall Street and their syncophants. They are the ones who we all need to keep an eye on because they have the American political system in the palm of their hand.
And that's an understatement
So, where's the PPT when important people need them? Isn't that what the little people pay taxes for?
Corporations don't deserve that cash. It belongs to the investors. Stock buybacks are the best way to return money to investors, since dividends are forced upon stockholders and taxed upon receipt, while stock appreciation allows those who wish to cash out to sell and pay taxes, while others can just keep their stock.
There is no rational reason to hate stock buybacks, unless you want corporationsto grow into perpetuity or become hedge funds managing their cash balance instead of being a pure-play.
Not all business is loot 'n scoot. In fact, business isn't. We all know the Vulture's Creed.
You might have a point if they were cash positive, but they aren't. They are borrowing that money and are in debt. It's the same as buying a company and levering it up only to bust it out. It's bullshit and the people who lose are the employees and others who put in a lot of work to make the business what it is (was).
Exactly right - it's bascially legalized accounting fraud what they are doing. I beleive the CFO has a swore fudiciary responsiblity to husband the company's resources. This is margin barrowing for short term pump and dump for the insiders at the expense of employees and shareholders.
In short every god damn thing wrong with this country today.
Almost free money from the FED empowers this. It will all collapse in a dust pile sooner or later.
It's called opportunity cost. The price it cost the company and shareholders to be sure the executives got the opportunity to save their bonuses.
Big box retail consumed it's own consumers.
They make this shit somewhere else and sell it here which is a business model with an expo date coded into it's DNA.
I'm fascinated by this phenomenon of stock buy backs--and I credit articles on Zero Hedge for starting my interest.
Companies buy back their stock, and then when they are done, the stock price tumbles! And when stock buy back activity is below average, like in 2009 and 2010 (Zero Hedge had at least one article about this), that was a great time to buy! And these CEOs are paid a good buck for their business acumen? What a joke!
Stcok buy backs is now one of my market indicators (taken in a contrarian way).