Bed Bath $(BBBY)$ laid out its strategic update Wednesday, and the company hopes to save $250 million this fiscal year through 50 store closures and a 20% reduction in its workforce. It also announced it had secured more than $500 million in new financing from J.P. Morgan and Sixth Street Partners.
The question is whether that is enough, given how quickly the company has seen its cash position and same-store sales dwindle.
The answer is that Bed Bath & Beyond needs a Christmas miracle.
"The company needed an infusion of capital to get them through the next six to nine months, so it's bought them some time," says David Silverman, senior director at Fitch Ratings. "Yet their comparable sales were down 26% last quarter; that is concerning, and without a credible plan to improve that trajectory, and frankly to reverse it, it's difficult to see how this company doesn't maintain its position as a company of concern over the next year."
Bed Bath & Beyond didn't immediately respond to a request for comment.
The company's most recent results, reported in late June, were certainly brutal -- not that investors would know it from a glance at the stock's chart: Even with today's 20%-plus selloff, the shares are up more than 65% this month, thanks to the meme trade.
But even as the stock has soared, the company's problems have mounted. Consumers have pulled back from buying home goods and an inventory glut has led to heavy discounting in the sector.
And the latest meme rally has happened so swiftly that Bed Bath hasn't been able to capitalize on it as effectively as other meme favorites, like GameStop ( GME) and AMC Entertainment ( AMC): Although Bed Bath filed a plan to sell 12 million shares of common stock, the proceeds it could have garnered from that have fallen. If it can sell those shares for $9, that nets the company $108 million -- hardly enough to put investors' minds at ease long-term, as the retailer burned through much more than that during the last quarter alone.
A fresh round of financing was crucial to assure vendors so it could stock shelves for the key holiday season. Yet it remains to be seen if shoppers will want to buy what they have.
"What's not clear is how the changes are going to be received by the customer, to stem market share losses and improve traffic," says Telsey Advisory Group analyst Cristina Fernández. "The strategy is now back to having more national brands like they did in 2018-2019, before the management changes, and that wasn't really working then. We have doubts whether that is the solution."
Bed Bath's first shot at a turnaround was during the pandemic -- former Chief Executive Mark Tritton signed on in late 2019 -- when the home goods sector was enjoying major tailwinds. Now those have largely evaporated, and it's undoubtedly "a more difficult environment for the industry," says Fernández. "Now you have a consumer that is pulling back on spending, a lot of competition that is increasing, excess inventory in the marketplace ...It's a more challenging economic and competitive backdrop, and Bed Bath is in worse financial shape."
That financial picture is clouded further by the fact that Bed Bath's previous credit was negotiated when it was still an investment-grade company. Its situation has become more precarious at a time when interest rates in general are going up, meaning any new debt it has secured will carry much higher interest than its current obligations.
"It's a combination of where Bed Bath is operationally and unfortunately overall rates have gone up, so they could take a double hit there," says Silverman. "They're going to need more capital in the next year or so, and maturities are coming up too."
Even closing 150 stores doesn't provide an instant solution, as the company has to deal with breaking leases.
"For the moment, Bed Bath may have saved itself from a restructuring scenario," Joseph Acosta, a partner at law firm Dorsey & Whitney, with experience in restructurings and Chapter 11 bankruptcies tells Barron's in an email. "But, if the holiday season does not go well or their capital raise does not produce the anticipated results, we might be talking about reorganization again in the late fall or early spring."
Expectations for retail, in general, have come down in recent months, as consumers grapple with inflation and direct their discretionary dollars away from goods, which will make it harder for Bed Bath to pull off the win it needs this holiday season.
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