Loop Capital Managing Director Anthony Chukumba joins Yahoo Finance Live to discuss Bed Bath & Beyond earnings expectations and the outlook for GameStop following the company’s stock split announcement.
Brian Cheung: Well, folks, the smell in the air of spring also comes alongside earnings season. And tomorrow, we’re going to hear from some big companies, including Bed Bath and Beyond, which many of our viewers will know has taken on a little bit of a meme stock vignette over the last few months and quarters. Let’s bring in Anthony Chukumba, Loop Capital Managing Director, with more on this.
Anthony, it’s great to have you on the program this morning. You’ve got a spicy note about Bed Bath and Beyond ahead of the earnings tomorrow. You have a sell rating on this stock, you think the target is somewhere around $10– tell me what you expect to see in those earnings.
ANTHONY CHUKUMBA: I mean, I think the numbers are going to be very, very terrible. I think that comparable store sales were probably down in the high single digits maybe even low double-digits. I think they had a very brutal holiday selling season. Now, one of the keys, really, is going to be their guidance for 2022.
Current consensus that they’re going to earn about $0.64 a share. I think that’s nonsense. I’m at $0.25 a share. And quite frankly, I think there’s a downside to my estimate. I mean, this is a company that just has lost a lot of market share, has lost a lot of relevance with consumers. And it’s really difficult to get those things back.
AKIKO FUJITA: I mean, $10 a share– significant downside from where it’s trading. We just showed it at $18.91 right now. What do you think drags it down?
ANTHONY CHUKUMBA: So I think at the end of the day, at some point, investors are going to have to start dealing in something I like to call reality. Look, there’s this notion that this company can be taken private. That doesn’t make any sense. It’s already way too levered, and the fundamentals are terrible, and interest rates are rising. There’s this notion that Buy Buy Baby is worth maybe more than the entire company.
Once again, I did a very detailed analysis of that Buy Buy Baby is not worth anything close to the entire market cap of the company. So I think at some point, as the saying goes, in the short-term, the markets are a voting machine and long-term, they’re a weighing machine. At some point, the stock price has to reflect the fundamentals of this business. And the fundamentals of its business are terrible.
Brian Cheung: OK, so then on that point, it sounds like you’re going to be dialed in very closely to the earnings call. I mean, the strategy for Bed Bath and Beyond has been kind of set out in the shape of, perhaps, reinventing their stores– we’ve seen that in the Manhattan location here, where I stopped by a few weeks ago. I mean, is any of that important? I mean, what is the biggest story if there would be some turnaround that might incentivize you in the future to perhaps raise your price target? What would you like to see out of the management from this company?
ANTHONY CHUKUMBA: So therein lies the problem, which is that they’re already doing all the things that I would have wanted them to do. So let’s recall– let’s rewind a little bit here. A couple of years ago, a trio of activist investors got involved with Bed Bath and Beyond and they were saying all the right things, right? You should sell your non-core assets, you should rationalize your merchandise assortment, you should do more private label.
They did all of those things with this new CEO– relatively new CEO– who came in with big credentials. He used to run merchandising for Target. None of it has worked. The patient is gone too far. I call this JCPenney 3.0.
The reason I call it JCPenney 3.0, remember, JCPenney 1.0 was when Bill Ackman got involved the stock, he brought in Ron Johnson, the guy who had founded the Apple store– that didn’t work. JCPenney 2.0 was a couple of years later when they brought in Marvin Ellison, you know, longtime Home Depot executive– he’s now running Lowe’s, doing a great job there. That didn’t work. I just think that the patient has stage four cancer, so you could bring in a reincarnation of Sam Walton, it would be too little, too late.
AKIKO FUJITA: You’re just getting wound up, I can see it. Anthony, to me there’s a common thread between Bed Bath and Beyond, the stock you’re talking about now, and then, of course, GameStop, which is a stock you used to cover. I know you no longer cover it. But Ryan Cohen, I’m looking at your note here and I’m thinking how many times you said the emperor has no clothes. What do you mean?
ANTHONY CHUKUMBA: Well, what I mean by that is, look, I’m not taking anything away from Ryan Cohen. He has at least three zeros in his net worth more than I do, right? He founded this company Chewy, he sold it for a bajillion dollars. But let’s just rid ourselves of this notion that somehow he’s the next Warren Buffett, because he’s not, right?
Look, he bought a big stake in GameStop. He became the chairman. He brought in all these executives, brought in all these board members. The stock went up a ton. But have the fundamentals of the business gotten any better– any better at all? The answer is, no.
And by the way, the stock peaked at $483. It’s now down to about $150. Same thing here with Bed Bath and Beyond, right? He bought the stake in Bed Bath and Beyond, he brought in these board members– you know, but in his letter, he said, oh, you could easily take this thing private. Oh, no you can’t.
He also said, hey, the market cap of Buy Buy Baby is more than the entire market cap of the company. Once again, no it’s not. So let’s just rid ourselves of this notion that he’s the next Warren Buffett, because he’s not. The emperor has no clothes.
Brian Cheung: OK, Anthony, just to kind push back on that, though, I mean, some could argue that, yeah, even though Ryan Cohen is going about a different way of doing this, he has encouraged the stock to go up. Yes, it’s definitely fallen from the highs that we’ve seen. But I don’t think anyone three years ago would have predicted that GameStop’s shares would be where they are right now, and they’ve tried to use that as a financial maneuver to improve the position that the company is in.
So when you look at actions like scooping up 100,000 more shares of the company, I mean, given the circumstances of GameStop and its ridiculous story over the last two years, is it maybe not that bad what Ryan’s been doing?
ANTHONY CHUKUMBA: Look, the only thing that he’s done where I applaud him is he took advantage of the meme stock moronicy– and I don’t know if that’s a word, maybe I made that up. But I think you know what I’m getting at. And he did issue more shares.
And so, you know, basically, they took advantage and they basically gave themselves a financial cushion to live to fight another day. But I’m just talking about the actual fundamentals of the business. Have the fundamentals of business improved? And the answer is clearly, no.
And so until I see some evidence at Bed Bath and Beyond, I’m just not going to buy it. I mean, look, I mean, call me a Boomer, that’s fine. I mean, you know, I have to look at the fundamentals of these businesses, not on what’s going on in Reddit message boards.
AKIKO FUJITA: I mean, you as an analyst need to look at the fundamentals, but isn’t the reality that these stocks, whether it’s Bed Bath and Beyond or GameStop, just haven’t traded on the fundamentals? And to your point, do you think they should lean in on the meme trade like we’ve seen from, for example, Adam Aron over at AMC?
ANTHONY CHUKUMBA: So you know, I mean, look, I mean, let’s just– I mean, you can easily do this. Pull up the stock price charts for Bed Bath and Beyond, which got caught up in the meme stock stuff before– for GameStop, for AMC, for KOSS, for Newegg– I mean, yeah, these stocks go up a ton, but then they come back down. Because at some point, there just aren’t enough of these sort of meme stock traders in the world to support these valuations long-term.
And at the end of the day, I mean, that’s– at some point, these companies’ stock prices are going to reflect the fundamentals of the business. They just are. And if they are not, like, I hate to say it, but we’re going to all be looking for new work.
Brian Cheung: Well, I certainly hope not. But I want to ask just kind of the big picture question here– you’ve been doing this for a long time. I mean, the investing landscape, and the story, and the narratives that we’re following in 2022 are very different than they were in 2018, 2017 because of the prevalence of this retail trader and Reddit boards, for example. Is it on net good or bad for capital markets as an analyst when you watch these types of things?
ANTHONY CHUKUMBA: Well, look, I want to be very careful about the way I answer this. Look, I think that it is wonderful– absolutely, positively wonderful that you have more and more people getting involved in the stock market at an earlier age, right? I mean, this is how you build wealth. This is how you save to buy a home, save for retirement, to put your kids in college.
But at the end of the day, there’s a difference between investing and doing in a sort of reasonable way and going on a message board and talking about diamond hands and to the moon. I mean, that’s not investing, that’s gambling.
If you’re going to do that, go to the casino. At least there, you get free drinks. So, look, like I said, it’s wonderful that retail investors are doing this and we’re seeing more and more of them doing that– particularly retail investors of color, quite frankly. But you know, like I said, there’s a difference between investing and gambling, and this is not investing. It’s gambling.
AKIKO FUJITA: That’s why we like to have you on, Anthony. You never hold back. Anthony Chukumba, Loop Capital Managing Director, good to have you on and hope to have you back on the show again soon.