Home Stock Market Commentary Bed Bath & Beyond Drama: Is Bankruptcy a Base Case Now? –...

Bed Bath & Beyond Drama: Is Bankruptcy a Base Case Now? – Vahid Karaahmetovic

Bed Bath & Beyond (NASDAQ: BBBY) shares are trading near zero as the embattled retailer fights to stay alive. The company is now urging shareholders to back the reverse stock split proposal at the upcoming special meeting, the Wednesday securities filing showed, as the embattled retailer tries its best to avoid bankruptcy. 

The approval of the proposal would allow the company to generate enough shares to secure up to $300 million in equity funding from a stock offering announced recently

Bed Bath’s stock price has seen a steep decline in the past several weeks, making it more challenging for the retailer to raise funds. The stock has been trading around 30 cents ahead of the market open on Friday, down a whopping 86% since the start of the year. 

Bed Bath & Beyond weekly chart (Source: TradingView)

The company warned in the filing that failing to secure approval for the stock split would make it nearly impossible to pay off its debts and remain afloat. 

“The Company may be unable to avoid bankruptcy if the Reverse Split Proposal fails to obtain shareholder approval. We need to raise equity capital to have the necessary cash resources to fund operations and service obligations under our Credit Agreement,” the filing says. 

According to Bed Bath, the ratio of the reverse stock split would be in the range of  1-for-10 to 1-for-20, depending on the board’s decision. If approved, it would notably cut the number of outstanding shares of BBBY common stock available, enabling the company to issue new shares to prepare for the stock offering. 

In addition, the split could also lift the retailer’s share price and ultimately attract investors who lost confidence in the stock. 

“We believe a higher share price could make our Common Stock more attractive to a broader range of investors, as we believe that the current market price of our Common Stock may affect its acceptability to certain professional investors and other members of the investing public,” the filing says.

Fundraising Struggles

Last week, the retailer said it would attempt to offload $300 million worth of common shares in the open market as it canceled a fundraising deal with hedge fund Hudson Bay Capital Management. 

The deal, which was also aimed at helping Bed Bath avoid bankruptcy, was terminated after the company reported another steep decline in sales in the latest quarter. Further, Bed Bath warned then that if its stock offering fails to materialize, it expects to file for bankruptcy protection. Bed Bath stock plummeted sharply on the news.

Bed Bath reported a significant revenue drop on March 30, with its comparable-store sales tumbling 40% to 50% in the fourth quarter ended Feb. 26, compared to the year-ago period. Total sales stood at $1.2 billion, down from $2.1 billion last year, and the retailer said it continued to lose cash on an operating basis. 

The company burned through nearly $900 million from operations in the nine-month period ended Nov. 26, when it reported around $150 million in cash and cash equivalents. 

The at-the-market (ATM) offering, also announced last week, is spearheaded by the middle market investment bank B. Riley Securities, which would allow the retailer to sell shares at market prices quickly and at a discount compared to traditional follow-on stock offerings. According to its securities filing, the company has until April 26 to raise the necessary funding to stave off bankruptcy. 

Bed Bath & Beyond also said it has entered a committed equity facility with B. Riley to back the company with additional capital in addition to the equity available at the upcoming stock offering. 

But it will be a challenging task for Bed Bath. The Union, New Jersey-based company has roughly three weeks to secure fresh $300 million from investors who have very low confidence in the stock. 

After being deprived of direct access to its own capital and forced to seek third-party financing to convince suppliers to ship merchandise, the company’s options that would help it escape the financial mess are running low. Earlier this year, Bed Bath’s lawyers convinced anxious lenders to help it evade bankruptcy. However, that deal raised just a small portion of its $1 billion target, further reducing the company’s chance of survival. 

These circumstances mark a sharp U-turn for Bed Bath’s stock, which once hit sky-high figures amid the meme-stock craze driven by retail investors. Now, it is those retail investors who have been offloading BBBY shares in recent weeks, according to Vanda Research. 

“Even retail investors are throwing in the towel on the stock rather than seeing this as an opportunity to double down and get behind the name as they did in the past with other meme stocks,” Marco Iachini, senior vice president at Vanda, told Bloomberg. 

He added that total retail trader purchases haven’t exceeded $100 million since last summer. 

Bed Bath announced recently it is in talks with financial services firm Hilco Global to restore merchandise back on its shelves. More specifically, the company has joined the vendor consignment program with ReStore Capital, an investment management firm under Hilco that provides struggling companies with  “creative financing solutions.” 

Under the terms of the deal, ReStore will buy up to $120 million of prearranged merchandise from Bed Bath’s key suppliers to help it lift its inventory levels. The purchases will be made on a revolving basis, at any given time. 

Bed Bath CEO Sue E. Gove said the program would help the retailer “increase our inventory position in top items that customers are buying and improve the customer experience. This capital-light solution can allow us to strengthen merchandise availability and better fulfill demand.”

Bottom Line

Bed Bath & Beyond shares are down ~98% over the last 52 weeks as the company fights for its life given major liquidity concerns. In its latest move, BBBY  has asked its shareholders to approve a reverse stock split to avoid bankruptcy. This way, the company would have more shares to cover the equity offering needed for a life-saving cash injection.