Why Bed Bath & Beyond Plunged Today

What happened

Shares of Bed Bath & Beyond (BBBY -29.88%) were spiraling today as the company posted a dismal, preliminary third-quarter earnings report and warned that it could be forced into bankruptcy.

As of 3:06 pm EST, the stock was down 24.2%, falling below $2 a share.

A living room with a green couch and other decor

Image source: Getty Images.

So what

The home furnishings retailer said it expected to report net sales of $1.259 billion in its fiscal Q3, down 33% from the quarter a year ago, due to lower traffic and reduced inventory.

It also estimated a net loss of $385.4 million, which includes a $100 million asset-impairment charge and compares to a net loss of $276.4 million in the quarter a year ago.

Finally, management warned that the company’s ability to stay in business was in jeopardy, saying in a press release, “The company has concluded that there is substantial doubt about the company’s ability to continue as a going concern.”

Management said it was open to all “strategic alternatives,” including asset sales, restructuring, and debt refinancing, though it appears increasingly unlikely that a white knight is going to step in to save the company.

Additionally, the company said a previous debt-exchange offer was terminated as conditions were not met, which seems to signal reluctance from creditors to lend the company more money.

The company also said its quarterly filing with the Security and Exchange Commission (SEC) would be late, and filed a notification of late filing.

Now what

CEO Sue Gove acknowledged inventory constraints imposed by creditors weighed on the company’s results and said the company used the cash injection from the holidays to beef up inventory.

While inventory levels may have improved, a lack of inventory is only likely to accelerate the company’s death spiral as it needs inventory to make sales.

Bed Bath & Beyond is set to give its full earnings report on Jan. 10. Given the wide losses, plunging revenue, and broader macroeconomic challenges, a turnaround for the retail stock looks increasingly unlikely.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Leave a Comment