Bed Bath & Beyond Inc.

is looking at fewer stores stocked with less stuff as a way to limit the amount of cash trapped in its operations.

The Union, N.J.-based company, which is known for stacking its home goods to the ceiling, is in the process of reducing the number of stores, bringing down its inventory and building out its distribution channels. Bed Bath & Beyond wants to close 63 stores by the end of its fiscal year in February 2021, for a total of 200 over the course of the next two years.

The home-goods retailer has been struggling with falling sales for years and had to temporarily close about 90% of its stores in the early days of the pandemic. Its stores have since reopened, and digital sales are up 89% in the three months ended Aug. 29. Still, revenue in its fiscal second quarter fell to $2.69 billion from $2.72 billion in the prior-year period, Bed Bath Beyond said earlier this month.

Chief Financial Officer Gustavo Arnal, who joined the company in May, is playing a key role in accelerating the retail chain’s transformation and freeing up cash for the business. “The way to get cash flow is working capital optimization,” Mr. Arnal said.

Bed Bath & Beyond’s working capital increased by nearly 10% to $1.24 billion in the year to the end of August, compared with the prior year period, according to CreditRiskMonitor, a provider of commercial credit reports.

The company has been trying to reduce its inventory levels for years, following a peak of $2.9 billion in fiscal 2016, but analysts said it still has room to go. Its fiscal 2019 inventory at $2.1 billion