DISCUSSION

Is spinning off or selling Buybuy Baby the right move for Bed Bath & Beyond?

April 27, 2022Written by George Anderson

Photo: Getty Images/RiverNorthPhotography

Bed Bath & Beyond is under pressure from activist investor Ryan Cohen to sell its Buybuy Baby chain and interested parties are lining up for a chance to acquire the business, according to a report last week by The Wall Street Journal. The paper reports that Cerberus Capital Management and Tailwind Acquisition, a firm chaired by former Casper Sleep CEO Philip Krim, have expressed interest in possible deals to acquire the baby products chain. Mr. Cohen, who co-founded Chewy and is the current chairman of GameStop, took a nearly 10 percent stake in Bed Bath & Beyond last month and began advocating for the company to spin off Buy Buy Baby and take itself private under new ownership. Mr. Cohen wrote in a letter last month to Bed Bath & Beyond’s board that Buybuy Baby by itself is likely more valuable than its parent company based on its target of $1.5 billion in sales for fiscal 2023, double-digit growth rates and a market penetration around 50 percent. “In the event Bed Bath pursued a full or partial sale of BABY, it could position itself to pay off debt, put cash on the balance sheet and continue reducing its share count, thereby creating significant value for shareholders,” wrote Mr. Cohen. “Spinning off shares of BABY would be an even more efficient way to transfer value to shareholders. Notably, BABY’s high online penetration would likely ease operational hurdles. We assume Bed Bath and BABY could still have a shared services agreement to maintain an omnichannel experience for customers.” Buybuy Baby has been a bright spot for Bed Bath & Beyond, which has seen its performance falter in recent quarters due to supply chain challenges. Bed Bath & Beyond CEO Mark Tritton, speaking earlier this month on the company’s fourth quarter earnings call, said that a 12 percent decline in same-store sales and adjusted gross margins of 28.8 percent were directly tied to “the lack of available inventory” and which “has proved to be a continuing impediment.” Buybuy Baby has been identified as a growth business by Bed Bath & Beyond with birth rates rising in the U.S. once again following declines tied to the novel coronavirus pandemic. The chain is expected to open between 20 and 25 new stores this year and its products will be featured as part of Bed Bath & Beyond’s shop-in-shop collaboration with Kroger announced last November.

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