Last week one of the world’s largest retailers, Bed Bath & Beyond (NYSE: BBBY), warned of potential bankruptcy. Shares of the company fell 47% last week and are currently trading 98% below all-time highs, valuing it at a market cap of $295 million.
Bed Bath & Beyond issued a “going concern” warning due to lower-than-expected sales and rising debt, making it difficult for the company to cover expenses such as supplier payments and lease agreements. It is also considering options, including corporate restructuring, raising additional capital, or selling assets.
Last September, Bed Bath announced plans to close 150 stores, reduce its workforce by 20%, and raise $500 million in financing. The struggling retailer expects net losses to rise 40% year over year to $386 million in Q3 (ended in November), while sales are forecast to slump by 33%.
Bed Bath ended the most recent quarter with $1.2 billion in unsecured notes. It also failed to refinance a portion of its debt. Last month it notified investors about plans to increase borrowings to pay off upcoming debt obligations.
Can BBBY stock gain pace in 2023?
Bed Bath & Beyond confirmed it struggling to keep stock of inventory as its running low on cash coupled with a strained relationship with suppliers. The retail company may find it difficult to stage a turnaround this year as consumers are wrestling with inflation and higher interest rates. Further, there is a shift in consumer spending due to the reopening of economies driving down sales of items such as cookware, duvets, or pillows.
Bed Bath’s cost-cutting efforts since September 2022 allowed the company to end fiscal Q3 with operating expenses of $583.6 million, lower than expenses of almost $700 million in the year-ago period.
But its turnaround strategy also included phasing out private label brands to accommodate well-recognized brands and drive sales higher. Investors would want to know if this allowed Bed Bath to improve inventory levels or if the company managed to secure exclusive products for the all-important holiday season.
Last year, Bed Bath’s Executive Vice President, Mara Sirhal, stated, “Being the first to bring new brands and products to our customer has always been one of our roles as a retailer. In the home market, there’re many D2C brands which bring their own compelling brand marketing and followers who know and want them but aren’t widely available to shop.”
Several emerging D2C (direct-to-consumer) brands are looking to partner with retail stores, including Bed Bath, in order to reach a wider base of consumers. However, Bed Bath’s weak financials and mounting debt has not allowed the company to partner aggressively with D2C brands.
A look at upcoming quarterly results
Bed Bath forecast net sales of $1.26 billion in fiscal Q3 of 2023 (ended in November), a decline of 33% year over year. Its net losses are expected to surge 40% year over year to $385.8 million, including an impairment charge of $100 million. Since Q1 of 2019, Bed Bath has reported an operating profit in just a single quarter.
Bed Bath may still manage to turn around its operations, but it is very unlikely for the company. Bed Bath CEO Sue Gove explained, “Transforming an organization of our size and scale requires time, and we anticipate that each coming quarter will build on our progress.”