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Rating Action:

Moody's changes Bed Bath's outlook to stable; affirms Ba3 CFR

22 Apr 2021

New York, April 22, 2021 -- Moody's Investors Service, ("Moody's") affirmed Bed Bath & Beyond Inc.'s ("Bed Bath") corporate family rating ("CFR") at Ba3, its probability of default rating at Ba3-PD and its senior unsecured notes rating at B1. The speculative grade liquidity rating is SGL-1. The outlook was changed to stable from negative.

"The change in outlook reflects Bed Bath's continued progress on improving its profitability while increasing its digital sales penetration. Its success in the divestiture of non-core banners and the rationalization of its store base supports its ability to enact its turnaround plan. Bed Bath is expected to continue to make progress on implementing its strategic initiatives which supports its ability to maintain leverage well below 4x in 2021 despite the potential for a more normalized level of demand for home related products as consumers resume spending on travel and leisure" said Senior Vice President, Christina Boni.

Affirmations:

..Issuer: Bed Bath & Beyond Inc.

.... Probability of Default Rating, Affirmed Ba3-PD

.... Corporate Family Rating, Affirmed Ba3

....Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD5 from LGD4)

Outlook Actions:

..Issuer: Bed Bath & Beyond Inc.

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

Bed Bath's Ba3 corporate family rating reflects its improvement in operating performance as customers shifted spending toward the home after the initial phase of the pandemic during which its stores were temporarily closed. The company has made considerable progress as demand has shifted to the home segment during the pandemic and as it has implemented its strategic initiatives. Bed Bath has been successful in growing its e-commerce business with an 83% increase in its digital sales in 2020, amounting to approximately 40% of its overall sales. Nonetheless the company continues to have intense competition from e-commerce and other value players and traditional discounters and remains at risk to continued market share erosion. Bed Bath continues to focus its efforts on improving assortments and layout, expanding private label, optimizing inventory and supply chain as well an enhancing its omni-channel capabilities to further its turnaround efforts. The company benefits from scale as the largest dedicated retailer of domestic merchandise and home furnishing with a national footprint and significant financial flexibility to support its continued progress. The company plans to introduce at least 8 new owned brands in fiscal 2021, with 6 launches in first six months which will support its margin expansion efforts. Additionally, Bed Bath has worked to rationalize its banners as well as its store base, closing 144 lower performing stores in 2020 with the expectation of 200 closed by the end of 2021. These efforts have enabled the company to focus on core operations and lower occupancy costs.

Bed Bath's rating is also supported by its very good liquidity, its cost reduction efforts, as well as its debt reduction in 2020. Bed Bath will make strategic capital expenditures to continue to invest in stores and supply chain with its investments accelerating to $400 million this year. Bed Bath's current cash balance is approximately $1.4 billion, and its nearest note maturity is 2024 with its undrawn $850 million ABL expiring in June 2023.

The stable outlook reflects Bed Bath's operating performance will continue to improve as the company enacts its business turnaround. The outlook also reflects that Bed Bath will continue to expand operating margins despite cost headwinds as online becomes a larger portion of the business. The outlook also reflects that company will maintain very good liquidity and that its financial strategy will remain balanced.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade would require that the company maintains consistent sales and operating income growth reflecting continued progress on its business transformation and stabilization of market share. Quantitatively, an upgrade would require operating margins sustained in excess of 5%, debt/EBITDA sustained below 4.0x and EBIT/interest above 2.0x while maintaining very good liquidity.

Ratings could be downgraded if the company's very good liquidity position deteriorates for any reason, if it is unable to gain traction with respect to key initiatives, including the roll-out of improved omni-channel capabilities, and resetting the cost structure, or if the company experiences significant market share erosion relative to its peers. Quantitatively, ratings could be downgraded if EBIT/interest remains below 1.5x.

Headquartered in Union, NJ, Bed Bath & Beyond Inc. is a onmi-channel retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Harmon, Harmon Face Values or Face Values, buybuyBABY, and Decorist. FY 2020 revenues for the period ending February 27, 2021 were approximately $9.2 billion.

The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Christina Boni
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Margaret Taylor
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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