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Bankrupt toy store Toys R Us is reportedly looking at closing another 200 stores and lowering its headcount after a poor holiday season. If this is the case, Bed Bath & Beyond Inc. (NASDAQ:BBBY)'s children's concept, buybuy BABY, stands to greatly benefit, according to Loop Capital.
The Analyst
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Loop Capital Markets' Anthony Chukumba maintains a Hold rating on Bed Bath & Beyond's stock with an unchanged $23 price target.
The Thesis
Toys R Us' ongoing struggles are likely to result in a complete liquidation of the company, including its core stores and Babies R Us concepts, Chukumba said in a Tuesday note.
Over 90 percent of Buy Buy Baby's 118 stores are within a 10-mile radius of a Babies R Us location. It's reasonable to assume that Babies R Us shoppers are "more likely" to shop at Baby's R Us stores than large-format discounters or online channels given the similar store format, merchandise selection and customer service level, the analyst said.
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Even working under the assumption of a 30-percent sales transfer rate and a 20-percent incremental operating margin, the complete closure of Toys R Us would add as many as 200 basis points to Bed Bath & Beyond's comparable sales growth and contribute 25 cents of annual diluted earnings per share, Chukumba said.
Bed Bath & Beyond does continue to suffer from heightened online competition, which implies that a bullish stance on the stock isn't yet justified, he said.
The eventual closures of Toys R Us cannot be accurately predicted, and the toy store's liquidation sales will pose a temporary headwind to Bed Bath & Beyond, according to Loop Capital Markets.
Price Action
Shares of Bed Bath & Beyond were trading lower by 0.5 percent Tuesday afternoon.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.