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Rating Action:

Moody's downgrades Bed Bath & Beyond to Baa2

Global Credit Research - 09 Jan 2018

New York, January 09, 2018 -- Moody's Investors Service, ("Moody's") today downgraded Bed Bath & Beyond Inc.'s (Bed Bath & Beyond) senior unsecured rating to Baa2 from Baa1 and changed the ratings outlook to negative from stable.

"The increased competitive and pricing pressures from e-commerce and other large discount retailers has compelled the company to maintain a highly promotional marketing strategy resulting in significantly lower operating margins and weakening of credit metrics. We expect this trend to continue in 2018, hence the downgrade", Moody's Vice President Mickey Chadha stated. "The uncertainty surrounding the timing and the company's ability to achieve margin stability accompanied with topline growth in the current retail environment is reflected in our negative ratings outlook", Chadha further stated.

Downgrades:

..Issuer: Bed Bath & Beyond Inc.

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa2 from Baa1

Outlook Actions:

..Issuer: Bed Bath & Beyond Inc.

....Outlook, Revised to Negative from Stable

RATINGS RATIONALE

Bed Bath & Beyond's Baa2 senior unsecured rating reflects its position as the largest dedicated retailer of domestics merchandise and home furnishings. We believe this positions the company well with consumers as a destination retailer for its products and this also translates into strong vendor relations. The rating also reflects Bed Bath & Beyond's significant scale with over 1500 locations, a meaningful online presence. The ratings also reflect the company's excellent liquidity. Bed Bath & Beyond's ratings are constrained by the highly fragmented nature of domestics merchandise and home furnishings retailing, and our expectations that continued investments and competitive pressures are likely to continue to negatively impact operating margins.

Increased price transparency for consumers has accelerated competitive and pricing pressure with increased promotional activity thereby compressing operating margins and weakening credit metrics. While sales have grown to over $12 billion for the LTM period ended November 25th, 2017 from $10.9 billion in fiscal 2012, EBIT margin has declined from 15% to 7% for the same time period. Therefore debt/EBITDA (adjusted for capitalization of operating leases) for the latest LTM period increased to 2.5 times from 1.9 times for the fiscal year ending February 28, 2015. We expect margin pressure to accelerate as the retail environment becomes even more competitive and investments in online capabilities continue and as a result we expect debt/EBITDA to increase to around 2.9 times and EBIT/interest to decline to around 4.25 times in the next 12 months.

The negative outlook reflects the uncertainty surrounding the company's ability to simultaneously stabilize margins and grow the topline while maintaining balanced financial policies and strong liquidity as we expect the operating margin pressures evident in the past couple of years to continue.

Ratings could be upgraded over time if the company is able to demonstrate operating margin stability indicating the company's various investments are delivering good returns. Furthermore the company would need to demonstrate financial policies that would be consistent with a higher rating. Quantitatively ratings could be upgraded if Debt/EBITDA was sustained below 2.5 times, and EBIT/Interest was above 6 times.

Ratings could be downgraded if operating margins continue to decline accompanied with a decline in same store sales indicating the competitive environment has intensified and promotional activity is not gaining traction. Ratings could also be downgraded if the company does not change financial policies in line with operating income growth by cutting back share repurchases to conserve cash. Quantitatively ratings could be downgraded if Debt/EBITDA was sustained above 3.0 times, or interest coverage fell below 3.75 times.

Headquartered in Union, NJ, Bed Bath & Beyond Inc is a retailer which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon, Harmon Face Values or Face Values, buybuyBABY and World Market, Cost Plus World Market or Cost Plus, Of a Kind, One Kings Lane, PersonalizationMall.com, Chef Central, and Decorist. The Company also operates Linen Holdings, a provider of institutional textiles. LTM revenues are over $12 billion.

The principal methodology used in these ratings was Retail Industry published in October 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

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.

Manoj Chadha
VP - Senior Credit Officer
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

Janice Hofferber, CFA
MD - Corporate Finance
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.
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