By James Rogers
Home-goods retailer is in the spotlight again after announcing the closure of almost 130 stores — along with third-quarter results that missed analysts’ top- and bottom-line estimates
Bed Bath & Beyond is in the spotlight again after announcing the closure of almost 130 stores — along with third-quarter results that missed analysts’ top- and bottom-line estimates — just days after the troubled retailer said it may need to declare bankruptcy.
“We continue to work with advisors as we consider all strategic alternatives to accomplish our near- and long-term goals,” Bed Bath & Beyond (BBBY) CEO Sue Gove said in a statement Tuesday.
Howard Ehrenberg, bankruptcy and reorganization practice partner at law firm Greenspoon Marder, thinks that Chapter 11 is a real possibility for Bed Bath & Beyond. “If I had a crystal ball, I would say that they are going to have to file Chapter 11 in order to close the maximum number of stores that they can without gutting the company,” he told MarketWatch.
Also read: Bed Bath & Beyond CEO says troubled retailer considering ‘all strategic alternatives’
The lawyer, who is not involved in Bed Bath & Beyond’s efforts to resolve its financial woes, added that the company appears to be running out of cash. “So, in Chapter 11, they will have to obtain DIP financing,” he said. DIP, or debtor-in-possession, financing lets companies keep operating in Chapter 11 bankruptcy.
But the company’s struggles also pose challenges for its suppliers, according to Ehrenberg. “Suppliers are also already concerned about supplying products on credit [to Bed Bath & Beyond],” he said. “In Chapter 11, vendors are likely to be even more concerned about delivering on credit terms, so are likely to impose even more stringent credit terms, even COD [cash on delivery].”
Now read: Bed Bath & Beyond’s Q3 earnings fall below estimates as loss widens and same-store sales fell 32%
Bed Bath & Beyond’s woes were likely exacerbated by the recent holiday season, according to credit-monitoring and risk-management company Creditsafe. “Coming off the heels of a tough holiday shopping season for all retailers, Bed Bath & Beyond has no doubt struggled to pay their bills due in part to a decline in consumer spending amidst rising inflation,” said Matthew Debbage, Creditsafe’s CEO for the Americas and Asia, in a statement emailed to MarketWatch. “If consumers are spending less and less revenue is being generated, then the harder it is for them to pay their suppliers. And when that happens, it’s going to have a domino effect on their financial health.”
Citing trade payment data, Debbage said that Bed Bath & Beyond had an average DB, or days beyond terms, of 19 in 2022, which meant the company typically took 19 days longer than the agreed payment terms to pay its suppliers. In contrast, Bed Bath & Beyond’s peers have a much lower DBT of seven days, he added.
The Creditsafe CEO said that Bed Bath & Beyond’s decision to close stores could be a good thing, allowing it to cut back on the amount of space it needs to hold stock and reducing the amount of debt it needs to take on. “It’s important to keep in mind that bankruptcy doesn’t mean the end,” he added. “It’s more of a restructuring and will give Bed Bath & Beyond the ability to establish transparency with suppliers and minimize its financial, legal and compliance risks.”
Now read: Bed Bath & Beyond bankruptcy warning marks latest chapter in troubled retailer’s downward spiral
Bed Bath & Beyond’s bankruptcy warning last week marked the latest chapter in a downward spiral for the sometime meme-stock darling
The announcement, which sent Bed Bath & Beyond’s stock sinking toward a 30-year low, follows a turbulent few years that have been marked by strategic missteps, cash burn, challenging underlying business trends and the impact of the COVID-19 pandemic.
On Tuesday, when it reported its third-quarter results, Bed Bath & Beyond said it has total liquidity of just $0.5 billion.
Also read: Bed Bath & Beyond planning to file for bankruptcy: report
“With just $500 million of cash and debt left to play with, the clock is ticking down and Bed Bath & Beyond will need to race to raise fresh cash if it wants to avoid bankruptcy,” City Index markets analyst Joshua Warner said in a statement emailed to MarketWatch. “Asset sales remain a possibility, but Bed Bath & Beyond could struggle to get the price tags it wants considering it will be negotiating from a weak position.”
On Tuesday, Bed Bath & Beyond also reported a third-quarter net loss of $392.9 million, compared with a loss of $276.4 million in the year-earlier period.
“If anything, today’s announcement of a $393 million quarterly loss could be a triggering event to file [for Chapter 11],” said Ehrenberg.
Now read:What can we expect from meme stocks AMC, GameStop and Bed Bath & Beyond in 2023?
These sentiments were echoed by Wells Fargo analyst Zachary Fadem. “It’s clear to us that ‘behind the scenes’ conversations are pointing in the direction of bankruptcy,” he said in a note released Tuesday. “Considering last week’s update, today was a ‘nothing-burger;’ but we’re cutting numbers and reiterating our underweight view with a potential bankruptcy filing in sight.”
Despite Bed Bath & Beyond’s third-quarter top- and bottom-line misses, the company’s stock rose 23.8% on Tuesday, outpacing the S&P 500’s gain of 0.4%.
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