Will Bed Bath & Beyond Be Put to Sleep?

Bed Bath & Beyond Inc. (NASDAQ: BBBY) has been in an absolute slump over the past year, with shares down 54%, not to mention this past week, down 17%. And it seems that things are only getting worse for the retailer after Standard & Poor’s downgraded its credit rating again.

In its most recent quarterly report, Bed Bath & Beyond noted continued weak operating performance for fiscal 2017 as a result of headwinds from increased competition and price transparency, higher promotional activities and higher costs related to its omnichannel platform. These are all trends S&P expects to persist in the next 12 to 24 months.

Ultimately, S&P believes that the company’s competitive position has eroded, as measured by a cumulative double-digit decline in EBITDA over the past two years. As a result, the firm lowered its ratings, including the corporate credit rating to BBB- from BBB.

The negative outlook reflects the expectation that S&P could lower the rating if the company cannot stabilize operating performance in the face of continued intense competition from online retailers. This would lead to the conclusion that the company’s business no longer supports an investment-grade rating.

In the report, S&P said:

While we continue to view the company as a leader in the home furnishing retail industry, we expect increased competition, higher promotional activities, and elevated costs related to the omni-channel platform will result in further meaningful erosion in EBITDA over the next 12 to 24 months.

On the other hand, in the unlikely event if the company can stabilize negative profit trends (including EBITDA and EBITDA margins) by successfully executing key initiatives, S&P could revise the outlook to stable. Although, this would take a couple of years.

Shares of Bed Bath & Beyond were last seen up 4.5% at $18.27, with a consensus analyst price target of $19.18 and a 52-week range of $17.35 to $40.33.