Analysts accuse Bed Bath & Beyond of turning off air conditioning in stores to save money as sales plunge

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New York (CNN Business) --

Retailers typically want their sales numbers to be red hot, not their customers.

But Bed Bath & Beyond is reportedly dealing with cooled momentum and heated customers at its stores.

A new report from Bank of America claims the company cut back on air conditioning in an effort to quickly cut expenses to offset falling sales.

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Bed Bath & Beyond told CNN that any changes to store temperature guidelines did not come from the corporation.

"We were contacted about this report, and to be clear, no Bed Bath & Beyond stores were directed to adjust their air conditioning and there have been no changes to corporate policy regarding the use of utilities," a representative said.

However, Bank of America analysts who have made store visits report growing concerns, including significantly cut work hours, reduced utilities, reduced store operating hours and the cancellation of remodeling projects.

Rewards programs have also been scaled back and replaced.

Analysts expect Bed Bath & Beyond management to announce more store closings soon and halt openings of its Buy Buy Baby stores.

Meanwhile, sales and price reductions multiply.

The company continues to offer lofty promotions, including up to 50% off bedding and furniture, free same-day shipping, $10 off a $30 purchase, and 20% off purchases of college students and their parents.

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But analysts at Riley Securities don't see such sales promotions as helping much.

They significantly lowered their price target for the retailer's shares to $7 from $17, citing a decline in store traffic.

The easing of covid restrictions means lower demand for home goods and supply chain problems have led to a lack of inventory to attract customers, they said.

Competitors such as Walmart and Target have seen their traffic remain flat, analysts noted, while Bed Bath & Beyond is down 20% to 30% year over year.

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The changes come ahead of the home goods retailer's first-quarter report, due this week, and follow a devastating report last quarter, in which sales fell 22%.

Bed Bath & Beyond CEO Mark Tritton said unavailability of certain products caused by supply chain issues led to about $175 million in lost sales during the period.

Bank of America analysts believe sales will fall another 20% this quarter.

"The company has underperformed the industry and we believe consensus estimates [of an 18% drop in sales] may be optimistic," they wrote.

Zacks Equity Research's consensus estimate for the retailer's earnings now stands at a loss of $1.28 per share, down 2,660% from last year.

According to the financial research firm, Bed Bath & Beyond has an average negative earnings surprise over the last four quarters of 4,700%.

Other factors of concern for the company include the resignation of two key financial executives in recent months, chief accounting officer John Barresi stepped down in May, and Heather Plutino, senior vice president of financial planning and analysis and trade finance, also left the company.

The sale of spinoff brand Buy Buy Baby also appears less likely, according to Bank of America analysts.

Activist investor RC Ventures, which owns a nearly 10% stake in Bed Bath & Beyond, advocated selling the brand earlier this year, and buyers have expressed interest.

However, analysts do not believe that interest can withstand these latest falls.

"We continue to experience challenges in completing a deal given BBBY's worsening financial position and rising high-yield margins," they wrote.

Analysts at Riley Securities said they had believed the sale or spin-off of the business could have generated $1.5-2 billion of value, but no longer believe a sale is imminent as the business is drying up.

Although the retailer is likely to see a few more struggling quarters, there is still hope, according to analysts.

Tritton took over as CEO of the home goods business after leaving his job as Target's chief commercial officer in November 2019 and quickly instituted a massive turnaround plan.

He announced a major store closing roadmap, made executive changes and led asset sales for companies like Christmas Tree Shops and Cost Plus World Market.

The company said it would spend about $250 million to refurbish some 450 Bed Bath & Beyond stores to make shopping easier and products more accessible.

"The turnaround is taking longer than expected to deliver due to supply chain challenges and entry into a more difficult retail operating environment," analysts at Riley Securities wrote, but "we believe Bed, Bath & Beyond is going in the right direction."

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