Table of Contents
Financial Ratio and Competitor Analysis. 4
Date: October 14, 2020
RE: Client Acceptance Discussion – Bed Bath and Beyond
Bed Bath & Beyond Inc. was established in 1971 by Warren Eisenberg and Leonard Feinstein, who originally called it Bed ‘n Bath. The first store opened in New Jersey. The company initially only sold items for the bedroom and bathroom. By 1985, the company expanded to 17 locations. In 1987, the company name was changed to Bed Bath & Beyond to reflect its full range of domestic merchandise and home furnishing. By 1991, it made $134 million in sales, going public on the NASDAQ stock exchange one year later. The company’s portfolio grew in other ways when the new millennium hit. It bought health and beauty retailer Harmon’s in 2002, and the nothing-but-tchotchkes Christmas Tree Shops the year after. In 2007, it acquired Buy Buy Baby, and in 2012, both Linen Holdings, LLC and Cost Plus World Market.
The Company also provides a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond. The Company operates websites at bedbathandbeyond.com, bedbathandbeyond.ca, worldmarket.com, buybuybaby.com, buybuybaby.ca, christmastreeshops.com, andthat.com, harmondiscount.com, facevalues.com, decorist.com, harborlinen.com, and t-ygroup.com. As of August 29, 2020, the Company had a total of 1,476 stores, including 955 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 259 stores under the names of World Market, Cost Plus World Market or Cost Plus, 128 buybuy BABY stores, 81 stores under the names Christmas Tree Shops, Christmas Tree Shops and That! or and That!, and 53 stores under the names Harmon, Harmon Face Values or Face Values. During the fiscal 2020 second quarter, the Company opened 2 stores including one Bed Bath & Beyond store and one buybuy BABY store. Also during the fiscal second quarter, the Company closed 4 stores including 3 Cost Plus World Market stores and one Bed Bath & Beyond store. The joint venture to which the Company is a partner operates ten stores in Mexico under the name Bed Bath & Beyond. Bed Bath and Beyond’s I.R.S Employer Identification Number is 11-2250488. The Commission file number is 0-20214. The executive office is located at 650 Liberty Avenue, Union, New Jersey 07083. Their phone number is listed as (908) 688-0888.
I recommend that we accept (or do not accept) Bed Bath and Beyond as an audit client for the reasons discussed below and summarized as follows:
The following is a list of the all members of the Board of Directors of Bed Bath and Beyond Inc and the name of their full-time employer.
|Name||Board Position||Full-time Employer|
|Mark J. Tritton||President, Chief Executive Officer & Director||Bed Bath & Beyond Inc|
|Harriet Edelman||Independent Chairman||Bed Bath and Beyond Inc.|
|John E. Fleming||Independent Director||Interim Chief Executive Officer, r21Holdings, Inc.|
|Sue E. Gove||Independent Director
Audit Committee Financial Expert
|President of Excelsior Advisors, LLC|
|Jeffrey A. Kirwan||Independent Director||Former Global President and Chief Executive Officer, Gap, a division of The Gap, Inc|
|Joshua E. Schechter||Independent Director
Audit Committee Chair
|Private Investor and Public Company Director|
|Virginia Ruesterholz||Independent Director
Audit Committee Member
|Former Executive Vice President, Strategic Initiatives, Verizon Communications, Inc.|
|Johnathan Osborne||Independent Director||Co-Founder and CEO, Red Antler|
|Harsha Ramalingam||Independent Director
Audit Committee Member
|President and Owner, Ramalingam Consulting|
|Andrea M. Weiss||Independent Director
Audit Committee Financial Expert
|Founding Partner, The O Alliance, LLC and Chief Executive Officer and Founder, Retail Consulting Inc.|
|Mary A.Winston||Independent Director||Founder and President, WinsCo Enterprises Inc.|
|Ann Yerger||Independent Director||Advisor, Spencer Stuart North America Board Practice|
Ten of the Twelve members of the Board of Directors would be considered Independent Members by the SEC rules. All of the members of the Audit Committee would be considered Independent Members by the SEC rules. Joshua Schechter is the Chairperson of the Audit Committee.
The latest 8-K filing was done on October 1, Bed Bath & Beyond Inc. issued a press release announcing the Company’s financial results for its fiscal second quarter ended August 29, 2020.
Fiscal 2020 Second Quarter Highlights included:
Form 8-K provides investors with current information to enable them to make informed decisions. The types of information required to be disclosed on Form 8-K are generally considered to be “material.” That means that, in general, there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision (cite). The Company invites financial analysts and institutional investors to save the date for a Bed Bath & Beyond Virtual Investor Day on Wednesday, October 28, 2020, starting at 9:00am EDT. The event will be hosted by President and CEO Mark Tritton and other members of the Company’s Leadership Team.
In one or two sentences, identify the date, topic, and purpose of the latest 8-K filing. Discuss the impact of 8-K on the organization, its investors, the public, and client acceptance. You can look at information on the company website or in reputable popular media sources to support your discussion and analysis. This may take one paragraph if it is a simple issue or several paragraphs if it is a complex issue.
The following table is a summary of some of the financial ratios of Bed Bath and Beyond for the three most recent fiscal years as well as the most recent ratios of their closest competitor, Wayfair. Remember to include 10 to 15 ratios total with a minimum of 2 in each of these 4 categories.)
You do not need to perform these calculations yourself. Various reputable websites have these ratios already calculated and available to the public saving you a lot of valuable time. If you use one of these websites, use the same site for the company and the competitor/industry so you know the same equation and calculation conventions are used and the numbers are comparable. Also, if you use one of these websites, make sure you reference it in-text and in the references list.
|Bed Bath and Beyond||Wayfair
|Current Ratio (example)|
|Quick Ratio (example)|
Include several paragraphs of narrative analysis of the financial position of the company. Do not simply list the ratios and tell me what the numbers were. I can read the table for that. Tell me what the numbers mean and what the trends mean over time. Tell me if the ratio meets the standard ratio criteria if there is one (e.g. Current Ratio should be greater than 1.). Tell me if it is a positive or negative trend and how you know. Remember that just because a number is getting bigger over time that does not mean it is a positive trend. Tell me what you think is happening (you can look at information on the company website or in reputable popular media sources to back up your assertions), what that means for the company, and how it impacts audit risk and client acceptance.
Include a similar discussion analyzing the standing of the company in relationship to its closest competitor or its industry. Again, do not write a summary of the numbers. Discuss and analyze what the company is doing in comparison to its competitor/industry. Tell me if it is a positive or negative trend and what that means. Tell me what you think is happening (you can look at information on the company website or in reputable popular media sources to back up your assertions), what that means for the company, and how it impacts audit risk and client acceptance.
Identify and discuss the core requirements necessary of the firm to perform an appropriate audit for the Company based on the size and scope of the company and the magnitude of audit engagement. Discuss and analyze the firm’s ability to provide the appropriate level of service to meet the needs of the company, its investors, the profession, and the public trust. This is where research in journal articles and the authoritative literature will help you the most. You will need to list, describe, and analyze a minimum of three requirements for service and/or client acceptance criteria.
[Requirement 1]. Tell me what the requirement is. Tell me what the requirement means and how the audit firm can or cannot meet this requirement. Tell me if the obstacles to meet the needs of this requirement are easy or difficult to overcome. Analyze this issue so I have all the information I need to know as a partner to make a decision about the firm’s ability to meet (or not meet) this requirement. The discussion of each requirement should be one to three paragraphs.
Discuss any ethical issues facing the company, its management team, or individual members of management or leadership within the organization. (Alternatively, you can discuss significant business decisions or changes in their business structure or business model.) Identify the issue and discuss the implications for the company, investors, the public, audit risk, and client acceptance. You should address at least one issue in this section although you can address more if there are numerous issues. This is where research in legitimate popular media sources will help you the most.
You may also add an additional section related to other considerations that are not specifically identified in any of the other sections of the memo. If there are significant issues that are important to client acceptance, you need to discuss those as well. (Just make sure to add a new heading (using the heading functions in Word) and update the Table of Contents (using Word’s functionality) to reflect the additional section.) These issues could be anything from domestic regulatory, industry, or political issues to issues with the economy, main customers or suppliers, or other global issues impacting the Target Company. The main thing to remember is that your analysis needs to be thorough and related to the risks of client acceptance.
Reiterate your client acceptance decision and briefly summarize your rationale.
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