Gather the ingredients. Preheat the oven to 350°F (175°C).

Cook bacon in a large skillet over medium-high heat, turning occasionally, until evenly browned, about 10 minutes. Transfer bacon to a Dutch oven with a slotted spoon. Reserve drippings in the skillet.

Generously season short ribs with salt and black pepper.

Heat drippings in the skillet over high heat; add short ribs. Cook until browned and caramelized on all sides, 3 to 5 minutes per side. Transfer ribs to a Dutch oven; reserve drippings in the skillet. Add thyme and bay leaf to the Dutch oven. Set aside.

Reduce heat to medium. Add onion to the skillet; cook and stir until soft and golden, 5 to 10 minutes. Add garlic; cook and stir until fragrant, about 30 seconds.

Whisk flour into onion mixture; stir until mixture becomes paste-like and light golden brown, 1 to 3 minutes.

Pour sherry into onion mixture; cook until thick and hot, about 2 minutes. Pour onion-sherry mixture into the Dutch oven; add beef broth and season with salt. Bring to a simmer; cover the Dutch oven with a lid.

Transfer Dutch oven to the preheated oven; cook until short ribs are fork-tender, about 2 hours. Transfer ribs to a serving dish; reserve sauce in the Dutch oven.

Set Dutch oven over high heat; boil sauce until reduced and slightly thickened, about 10 minutes. Spoon reduced sauce over ribs.