Bed Bath & Beyond (BBBY) had a brutal 2022.
With debt and losses piling up, the home goods retail chain warned on Thursday that bankruptcy is approaching. And according to one expert, the end could be much sooner than expected.
“I think it’s inevitable that they file,” Macco CEO Drew McManigle told Yahoo Finance Live (video above). “I wouldn’t be surprised to see them file as early as this weekend. There’s no reason not to … I’m not going to be one to be surprised if the Chapter 11 petitions haven’t already been drafted and are just waiting for a signature.”
Sales of Bed Bath & Beyond have been in a dire state since 2018. The company is currently sitting at a loss of $385 million. Investor sentiment towards the stock is also rather grim — following the news of likely bankruptcy, shares tanked 29% and closed at $1.69 a share on Thursday.
“Much like an emergency room, if the patient dies, what difference does any of it make?” McManigle said. “So the premise of a turnaround is to save the company so it’ll have another fight another day. I don’t think Bed, Bath & Beyond is going to.”
Turnaround efforts in vain
Despite recovery efforts made by Bed Bath & Beyond, McManigle isn’t convinced it will make much of a difference anymore.
“I suspect they’ve been working on their debtor in possession financing,” he said. “I think it’s a fait accompli that they’re filing … It was valiant that they tried to enact a turnaround plan but they came late to it, and it wasn’t deep enough or far enough.”
Turnarounds to boost sales were first implemented by CEO Mark Tritton in 2021. Recovery under Tritton meant remodeling with “physical and digital merging” and bouncing back post-pandemic with some store closures.
Soon, Bed Bath & Beyond simply ran out of cash. The debt load in March was nearly $3 billion some of which the company repaid via its stock. By late June 2022, operating loss was $224 million, and Tritton was replaced by current CEO Sue Gove.
“Cash is the lifeblood of these businesses,” McManigle said. “If you run out of cash, you’re out of business. And that’s one of the things that’s affected Bed Bath & Beyond.”
The company previously secured $500 million in financing back in August 2022 and used the lifeline to close roughly 150 underperforming stores (about 20%) across the country.
According to McManigle, though, that number “just isn’t enough.”
“We would have gone in and looked at each and every store,” he said. “And if it was losing money and if the sales weren’t relevant, we would have shut it down. In turnarounds, you’re going to break a few eggs, including the stock price.”
What bankruptcy means
Bed Bath & Beyond relies heavily on its vendors. Once the company files for bankruptcy, the vendors won’t be able to initiate lawsuits against the company to ask for their checks.
“Consequently, [vendors] tighten their credit terms, which means that Bed, Bath & Beyond can’t fill its stores with inventory for sale,” McManigle explained. “So the bankruptcy process allows you to remain in business within a process that gives creditors and others some comfort that there’s going to be a debtor in possession. It will be somewhat business as usual, as you try to get your business plan turned around.”
Meanwhile, the value of the brand has to be evaluated. A company would need to increase their brand value to make the entire business ready for purchase.
In McManigle’s eyes, the Buy Buy Baby and the company’s Harmon pharmacy chain both have some market value. In the case of chapter 11 bankruptcies, companies typically would want to maximize that value in order to find someone who would want to buy the business, either in parts or entirely.
As of Jan. 5, Bed Bath & Beyond’s market cap stands at $198 million.
Tanya is a data reporter for Yahoo Finance. Follow her on Twitter @tanyakaushal00.
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