Could Target and Walmart Be Beneficiaries From A Bed Bath & Beyond Bankruptcy?

Retail giants Target Corporation TGT and Walmart Inc WMT might gain some market share inadvertently and could be the unintended beneficiary of the looming bankruptcy risk for the retail chain Bed Bath & Beyond BBBY.

Bed Bath & Beyond, labeled among the “meme stocks,” tanked after billionaire investor and GameStop Chairman Ryan Chen exited his position and made over $60 million profit.

The company has been struggling recently with high debt and falling sales despite attempts to overhaul, leading it to seek the help of the law firm Kirkland & Ellis.

Kirkland & Ellis helps companies in restructuring efforts to reduce debts. As the news of Bed Bath’s uncertain future spread, analysts from various brokerages are viewing the situation as a good opportunity for other retail giants to take over the market share.

Read: Could Bed Bath & Beyond Declare Bankruptcy? These 2 Recent Developments Suggest Yes

UBS said Target and Walmart would be the obvious share winners, with Walmart’s comparable sales gaining 35-40 basis points from Bed Bath & Beyond store closures.

UBS: $TGT and Walmart "are the obvious share winners from $BBBY. .. we calculate that $WMT could see 35-40 bps of incremental comp growth at its core US business in '23 if all the Bed Bath and Buy Buy Baby stores were to close (assuming it captured 25% of its addressable share)."

— Carl Quintanilla (@carlquintanilla) August 23, 2022

Raymond James analyst Bobby Griffin said with Target’s improving inventory levels, growing private label penetration, strong brand partnerships, and customer demand, FY23 earnings should see a big benefit. Griffin raised the price target on TGT to $200 from $190.

RBC Capital Markets analyst Steven Shemesh feels Target has made progress in clearing excess inventory and is preventing a rise in shipping costs by storing the extra inventory in shipping containers near the ports before strategically adding them to the supply chain. 

Shemesh said Target’s steady reinvestment behind digital capabilities, right-sizing price gaps, store remodels, and owned brands will result in a structural step-up in the company’s revenue base. He lowered the price target for the stock to $223 from $231.

Morgan Stanley analyst Simeon Gutman said that Walmart’s FY23 inventory/markdown issues seem to be under control. Q2 results were better than the recent business update.

According to Gutman, it appears inventory challenges are being managed appropriately, and negative revisions may be troughing, with some potential upside in 2H. Importantly, we feel more confident underwriting the current EPS guidance (which calls for a ~10% y/y EPS decline at the midpoint, or ~$5.80) as a new baseline.

The analyst believes that WMT seems to be making progress on inventory, but we expect more markdowns/inventory actions in Q3 to optimize inventory levels fully. Gutman raised the price target on WMT to $150 from $145.

Photo via Wikimedia Commons