Bed Bath & Beyond
fought its way back from the brink of bankruptcy this week, striking a deal that promises a more than $1 billion-dollar lifeline. But while the move should help the embattled retailer resolve its most immediate financial problems, analysts say there’s no evidence it will fix the company’s underlying issues.
On Tuesday, Bed Bath said its equity offering secured $225 million, with promises to receive an additional $800 million in future installments. The capital will go toward paying down its substantial debt and buy time to finish implementing its latest turnaround strategy, which includes closing stores and improving inventory and supply chain management.
Many on Wall Street, however, suspect the company will find itself in a similar position within a few months.
“As we see a low probability that the company achieves its 2023 turnaround plan, we ascribe little-to-no value to the company’s equity on a probability-weighted basis,” wrote Wedbush analyst Seth Basham in a research note on Wednesday. “Failure to secure the additional $800m and/or an unsuccessful turnaround in 2023 could put the company back on bankruptcy’s doorstep.”
Basham, who has an Underperform rating on the stock, had lowered his price target for the shares to $0 earlier this week. On Wednesday, he raised it to 25 cents.
Bed Bath & Beyond
didn’t respond to Barron’s request for comment.
In a filing with the Securities and Exchange Commission on Monday, the company acknowledged that it has “historically underperformed in implementing management plans.” The current turnaround plan, meanwhile, is ambitious, especially in light of the retailer’s recent performance.
The company expects to reduce selling, general, and administrative expenses by up to $1 billion in fiscal 2023, according to the filing. In its most recent quarter, it spent $583.6 million on those expenses, down from $698 million in the year-ago quarter.
Bed Bath also projects that comparable sales will grow by mid- to high-single digits in fiscal 2023, with an adjusted gross margin in the low-30% range. Both metrics would be a major improvement from Bed Bath’s third quarter, when the company reported that comparable sales fell by 34%, with an adjusted margin of 22.8%.
The company’s aggressive store closures will also limit its options: Bed Bath plans to close 150 stores by the end of fiscal 2022, and has a long-term goal of shuttering over 400 additional stores. UBS analyst Michael Lasser estimates that the closed stores would have brought in about $1.2 billion in annual sales. While the company will likely retain “a portion” of those sales through other locations and its online channel, the majority will go to competitors like
), Lasser wrote in a research note.
Diana Veras usually visits her local Bed Bath & Beyond in East Elmhurst, New York, about once a week to restock on beauty and home supplies. Now that the store is closing, she’ll probably start shopping at Target more often, she said.
“It’s gonna mess up my shopping routine because [Bed Bath & Beyond] is the closest store to my house,” she said.
The company’s turnaround plan also hinges on maintaining current relationships with vendors and the ability to “re-establish customary vendor terms,” according to the filing. Bed Bath’s vendor relations first took a hit when the company pivoted to a private-brand strategy. While they have since walked back that approach, relationships with outside brands have remained rocky. At the same time, vendors have reportedly been spooked by the possibility that Bed Bath could enter bankruptcy; once vendors lose confidence in a retailer’s ability to repay them, they become reluctant to ship more products, said DA Davidson analyst Michael Baker.
The vendor problems have left the stores with understocked shelves. In January, CEO Sue Grove said the company was facing “lower in-stock levels, in the 70% range.” That’s a less than ideal recipe for wooing shoppers.
Customers aren’t the only ones lamenting Bed Bath’s latest decisions. Shareholders don’t seem very happy either. Since the company announced plans for the equity offering Bed Bath stock has tumbled, reversing some of its meteoric gains from earlier in the week. On Wednesday, the stock was down 13% to $2.63.
Monir Ahmed is a regular at the same East Elmhurst store where Veras shops. He and his wife pop in at least once a week for anything from kitchen supplies to beauty supplies to simply browsing around the store. Over the last couple of months, however, he’s seen the store’s supply dwindle. By Tuesday, the shelves were mostly empty, dotted with final sale posters.
“It’s really sad,” Ahmed said. “We need this store.”
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