Bed Bath & Beyond will increase its reliance on private label and “preferred” brands as it seeks to boost gross margin and reverse slumping sales, company executives said in releasing Q4 earnings.

The chain launched its first private label in March – Bee and Willow Home – with bedding, area rugs, and decorative accessories “performing well” thus far, CEO Steven Temares said. It plans to launch five more private labels through 2020.

At the same, the so-called preferred brands also are helping sales. Britannica Home Fashions’ licensed UGG bedding (quilts, sheets, comforters, blankets and throw pillows) posted a $70 million increase in revenue in 2018, benefitting from heavy promotion and “enhanced visual merchandising,” Temares said. UGG bedding, which is exclusive to Bed Bath, will have a broader assortment this year, Temares said. It also has an exclusive for Levinsohn Textile Co.’s licensed New York Botanical Garden bedding that launches this month.

Bed Bath seeks to return gross margins to 36%, a level last achieved in 2017. Gross margin in Q4 ended March 2 was 34.7% and is forecast to be 34.6-35.2% this year. To bolster margins, Bed Bath expects to triple the number of products that it directly imports/sources “in the years ahead” and has opened a second sourcing office in Asia.

The company plans to close a minimum of 40 stores this year and potentially more if it doesn’t gain “more favorable lease terms” from landlords, CFO Robyn D’Elia said. It will open 15 stores, with much of the focus on its Buybuy Baby chain. The majority of stores closing would be Bed Bath & Beyond; the company also operates Christmas Tree Shops, Cost Plus World Market and buybuy Baby. It has a total of about 1,500 stores including 1,015 under the Bed Bath & Beyond label.

The chain also has opened 21 Bed Bath & Beyond “lab” stores that carry less inventory and put a great emphasis on home décor, food and beverage, health and beauty care and lifestyle merchandising. Lab stores have recorded same-store sales and product margins that are 2.2% and 3.6% higher, respectively, than in standard locations.

Bed Bath has been under pressure activist shareholders Legion Partners Asset Management, Macellum Advisors and Ancora Advisors, who have criticized the chain for being late in adopting a private label strategy that has been championed by Target, Walmart and other retailers. The activists, who control a 5% stake in the chain, plan to launch a proxy fight to replace the board and hire a new CEO.

The company registered a $137.2 million net loss in Q4 ended March 2 , compared to from a $424.4 million profit a year earlier as it took a $509.9 million charge for goodwill and trademark impairment.  Sales declined 11% to $3.3 billion on a 1.4% decline in same-store sales.

Contact:

Bed Bath & Beyond, Robyn D’Elia, CFO, 908-688-0888, robyn.delia@bedbath.com