Bed Bath & Beyond Inc. (NASDAQ:BBBY)

The period under review demonstrates a consistently negative economic profit for the entity, although fluctuations in the underlying components are evident. Net operating profit after taxes (NOPAT) exhibits significant volatility, while invested capital generally declines over the observed timeframe. The cost of capital also varies, influencing the calculation of economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT begins at US$935,216 thousand in 2017, then decreases to US$735,312 thousand in 2018. A substantial decline follows, resulting in a loss of US$83,311 thousand in 2019. This loss expands significantly to US$522,990 thousand in 2020 before partially recovering to a profit of US$98,133 thousand in 2021. However, NOPAT again falls into negative territory in 2022, reaching a loss of US$301,295 thousand.

Cost of Capital

The cost of capital starts at 16.26% in 2017, decreasing to 11.33% in 2018 and 11.58% in 2019. A further reduction is observed in 2020, reaching 8.36%, the lowest value in the period. The cost of capital then increases to 14.22% in 2021 before decreasing again to 10.65% in 2022.

Invested Capital

Invested capital shows a general downward trend throughout the period. Beginning at US$6,680,896 thousand in 2017, it decreases to US$6,556,645 thousand in 2018 and continues to decline to US$5,788,203 thousand in 2019. This downward trend persists, reaching US$5,094,957 thousand in 2020 and US$4,261,005 thousand in 2021. The lowest value is recorded in 2022, at US$3,288,320 thousand.

Economic Profit

Economic profit is negative in each year of the period. It begins at a loss of US$150,891 thousand in 2017, slightly improving to a loss of US$7,286 thousand in 2018. However, the loss widens considerably to US$753,651 thousand in 2019 and reaches its largest negative value of US$948,896 thousand in 2020. While the loss decreases to US$507,710 thousand in 2021, it remains substantial and increases to US$651,450 thousand in 2022. The consistent negative economic profit suggests that the entity is not generating returns exceeding its cost of capital.

The interplay between declining NOPAT and decreasing invested capital, coupled with fluctuations in the cost of capital, contributes to the sustained negative economic profit. The largest losses coincide with periods of significant NOPAT decline, particularly in 2020. Despite a temporary improvement in NOPAT in 2021, the overall trend remains unfavorable from an economic profit perspective.

Net Earnings (Loss)

The net earnings demonstrate a declining trend over the observed periods. The company reported positive earnings in 2017 and 2018, with figures of approximately $685 million and $425 million respectively. However, from 2019 onwards, the net earnings turned negative, with losses deepening each year. The largest loss was recorded in 2020 at around $614 million, followed by losses of approximately $151 million in 2021 and $560 million in 2022. This pattern indicates a significant deterioration in profitability beginning in 2019.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values show a similar trajectory to net earnings. Positive and relatively strong NOPAT were recorded in 2017 and 2018, amounting to approximately $935 million and $735 million respectively. In 2019, NOPAT dropped sharply to a negative value of about $83 million, continuing the downward trend into 2020 with a significant loss of roughly $523 million. An improvement was noted in 2021 when NOPAT turned positive again at approximately $98 million, but this was not sustained, as 2022 saw a return to negative territory with a loss nearing $301 million. These fluctuations highlight instability in operational profitability and challenges in maintaining post-tax operating profits.

The analysis of the financial data reveals several notable trends in the provision for income taxes and cash operating taxes over the examined periods.

Provision (benefit) for income taxes

The provision for income taxes demonstrates significant fluctuations and a downward trend from 2017 through 2021, followed by an upward reversal in 2022. Initially, there was a substantial provision of $380,547 thousand in 2017, which decreased to $270,802 thousand in 2018. In the subsequent years, this provision shifted into negative territory, reflecting income tax benefits rather than expenses, with -$19,385 thousand in 2019, further deepening to -$185,989 thousand in 2021. However, in 2022, there was a sudden reversal with the provision increasing to a positive figure of $86,967 thousand. This shift indicates considerable volatility in the company's tax-related expenses and potential fluctuations in profitability or tax strategies.

Cash operating taxes

Cash operating taxes exhibit a pronounced downward trajectory with considerable variability. Beginning at $355,672 thousand in 2017, cash taxes paid plummeted to $161,195 thousand in 2018 and further declined to $126,720 thousand in 2019. The downward movement continues sharply in 2020 and 2021, reaching negative values of -$294,013 thousand and -$3,389 thousand, respectively. The negative values during these recent years suggest significant tax refunds or reductions, possibly related to tax credits, loss carrybacks, or adjustments in cash tax payments. The sharp decline and negative amounts indicate irregular tax cash flows, which could reflect tax planning measures or operational challenges affecting taxable income.

Overall, both income tax provisions and cash operating taxes indicate a period of decreasing tax expenses followed by irregularities and eventual volatility in recent years. These patterns might be linked to changes in profitability, tax laws, or strategic financial management, warranting further detailed investigation into underlying causes and potential impacts on the company's financial position.

Total reported debt & leases

The total reported debt and leases exhibit a general downward trend over the analyzed period. Beginning at approximately $4.2 billion in early 2017, the figure decreases gradually to about $3.8 billion by early 2019. There is a slight uptick in early 2020 to around $3.9 billion, followed by a more pronounced decline to just over $3 billion by early 2021, after which it stabilizes near $3.07 billion in early 2022. This trend indicates a significant reduction in the company's indebtedness and lease obligations over the six-year span.

Shareholders’ equity

Shareholders’ equity shows a marked downward trajectory throughout the period. Starting at approximately $2.7 billion in early 2017, it experiences moderate fluctuations but declines substantially after 2019. The equity falls sharply from about $2.56 billion in 2019 to roughly $1.76 billion in early 2020, followed by a further decline to approximately $1.28 billion in early 2021. By early 2022, equity dwindles considerably to about $174 million. This significant erosion suggests ongoing losses or other factors negatively impacting retained earnings and overall net asset value.

Invested capital

Invested capital declines steadily over the analyzed period, beginning at roughly $6.7 billion in early 2017 and decreasing consistently year-over-year. By early 2020, invested capital stands near $5.1 billion, continuing to diminish to approximately $4.3 billion in early 2021, and further down to nearly $3.3 billion in early 2022. This consistent reduction reflects a contraction in the company’s total capital employed, which aligns with decreases in both shareholders’ equity and debt levels.

The financial performance, as indicated by economic value added metrics, demonstrates a consistently negative economic profit over the observed period. Invested capital has generally decreased, while the economic spread ratio has exhibited increasing negativity.

Economic Profit

Economic profit consistently registers as a negative value throughout the period, ranging from a low of -948,896 (in thousands of US dollars) to a high of -7,286. The magnitude of the negative economic profit generally increased from 2017 to 2020, before decreasing slightly in 2021, and then increasing again in 2022. This indicates that the company’s returns on invested capital have consistently fallen short of its cost of capital.

Invested Capital

Invested capital shows a general downward trend over the six-year period, decreasing from 6,680,896 (in thousands of US dollars) in 2017 to 3,288,320 in 2022. While there is some fluctuation year-over-year, the overall direction is clearly decreasing, suggesting a reduction in the company’s asset base or a shift in capital allocation strategies.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, consistently reflects negative values, indicating that the company is not generating returns exceeding its cost of capital. The ratio becomes increasingly negative over time, moving from -2.26% in 2017 to -19.81% in 2022. This worsening trend suggests a growing disparity between the company’s returns and its capital costs, and a declining ability to create economic value.

The combined trends suggest a deteriorating financial position from an economic value perspective. The consistent negative economic profit, coupled with the decreasing invested capital and increasingly negative economic spread ratio, paints a picture of diminishing returns and a growing challenge in generating value for investors.

The economic profit margin demonstrates a consistently negative trend over the observed period. While initially small, the negative margin has widened significantly, indicating a growing disparity between the company’s cost of capital and the returns generated from net sales.

Economic Profit Margin Trend

In February 2017, the economic profit margin was -1.24%. This represents a relatively modest negative return on net sales. A slight improvement was noted in March 2018, with the margin increasing to -0.06%. However, this improvement was short-lived.

From March 2019 onwards, the economic profit margin experienced a substantial and accelerating decline. The margin deteriorated to -6.27% in March 2019, then to -8.50% in February 2020. This downward trajectory continued, reaching -5.50% in February 2021, before concluding at -8.28% in February 2022.

The increasing negativity of the economic profit margin correlates with a decreasing trend in net sales. While net sales decreased gradually from 2017 to 2020, the decline accelerated in 2021 and 2022. This suggests that the company’s ability to generate economic profit is being negatively impacted by both declining sales and a consistent cost of capital that exceeds returns.

Relationship to Net Sales

The most significant deterioration in the economic profit margin coincides with the largest declines in net sales, particularly between February 2021 and February 2022. This suggests a strong link between revenue generation and the company’s ability to cover its cost of capital.

The initial period (2017-2018) shows a relatively stable net sales figure, with a minor fluctuation in the economic profit margin. This indicates that factors beyond sales volume, such as cost of capital or operational efficiency, may have played a more significant role in the margin’s initial performance.

The consistent negative economic profit margin across all observed periods indicates that the company is consistently destroying economic value. The accelerating decline in the margin, particularly in recent years, suggests that the situation is worsening and requires attention.