Since 2009, the stock market has been in a bull market, the economy has expanded, and corporate earnings have steadily increased. Most sectors in the economy have tracked these gains to some extent, yet there are few sectors that have completely failed to participate in the economic growth over the past decade.
In fact, many are near or under their 2009 lows. This abysmal performance reflects that these businesses are in the midst of serious secular declines which threatens their survival. The most infamous example is coal stocks, many of which went bankrupt between 2011 and 2015 due to more stringent environmental regulations and falling natural gas prices. Other struggling sectors include steel stocks and select retailers.
Bed Bath & Beyond's Struggles
The struggle for retailers is not surprising as it's always been an industry with tons of churn due to people's changing tastes and competitiveness with low margins and relatively high fixed-costs. Currently, one casualty is retailers targeting the middle class such as Sears Holdings, Macy's (NYSE: M), JC Penney (NYSE: JCP), or Bed Bath & Beyond (NYSE: BBY).
Retailers targeting the lower-end like dollar stores and big-box discounters have thrived. Additionally, online shopping is another major threat to retailers, as they can offer more options at lower prices. Further, younger people are more accustomed to shopping this way. Retail winners like Walmart (NYSE: WMT), Target (NYSE: TGT), or Nordstrom (NYSE: JWN) have managed to grow their business by tapping into this growth channel.
Rough Third-Quarter Earnings
Bed Bath & Beyond's stock was almost 20% lower following its miss on sales and earnings. Further, the company withdrew its guidance for 2020, an ominous sign. The company also dismissed the bulk of its executive team due to this flagging performance.
Even as sales decline, the company's costs have remained consistent, leading to lower margins and unprofitable quarters. Additionally, there seems to be no strategy to change this trend other than its efforts to modernize its website and digital sales strategy to match its competitors.
Its stock is reasonably priced with a price to earnings ratio of 13. Stores continue to have solid foot traffic, and it ranks high in the "home goods" category. Additionally, the new CEO is from Target, where he helped to spearhead reforms that are integral to its current success. The major risk factors are that the stock could represent a value trap, as the stock is experiencing 11 straight quarters of declining revenues in a strong economy with an improving housing market.