Bed Bath & Beyond Stock Rebounds Despite Looming Bankruptcy Risk

  • Stock Market Analysis

Big-box retailer Bed Bath & Beyond (NASDAQ: BBBY ) reported a significant loss for its fiscal third quarter and a major decline in sales as the company struggled to cushion the prolonged cash burn that led to bankruptcy warnings last week.

The report marks another in a series of blows for the home goods retail company, which has been struggling to secure enough cash amid mounting pressures from vendors and a slump in demand due to the deteriorating global economy.

How Did BBBY Perform in Q3?

The company reported a net loss of $393 million for the quarter that ended Nov. 26, up from $276.4 million in the year-ago period. On a per-share basis, Bed Bath & Beyond reported an adjusted loss of $3.65, significantly wider than consensus estimates of $2.23 per share. Net sales also declined sharply by 33% to $1.26 billion, while foot traffic fell 23.1% from a year ago.

It also disclosed a $100.7 million impairment charge, showing that the value of the retailer’s inventory was below its original estimates. Bed Bath & Beyond said cash and cash equivalents plummeted to $153.5 million from $509 million, making it increasingly difficult for the company to secure enough merchandise for its shops.

The earnings report also showed a 22.8% drop in gross margins, missing the Wall Street consensus by roughly 500 basis points. Comparable sales declined 32% from the same period last year, while analysts were expecting a 23.9% drop. The company reported a negative $307.6 million in cash from operations, ending the quarter at about $500 million of liquidity, marking a steep drop from the previous $850 million.

Inventory was down around 25% at $1.44 billion in the quarter after Bed Bath scrapped some of its businesses, such as Wild Sage, and announced big Black Friday discounts.

Bankruptcy Warnings

The company said last week that there is “substantial doubt about the company’s ability to continue” amid mounting financial issues, the company wrote in a regulatory filing. In its earnings call on Tuesday, Bed Bath did not clarify whether it plans to file for bankruptcy protection, but it said it would lay off more staff to cut costs.

Jaime Katz, an analyst at Morningstar, said she expects Bed Bath & Beyond to file for bankruptcy protection in the first half of 2023, as it seems unlikely that lenders will participate in a debt swap. Major financial news outlets reported last week that BBBY could file for Chapter 11 protection in the coming weeks.

Shares of Bed Bath plunged 30% on the report to an all-time low of $1.31 per share. However, the BBBY stock recovered in the past few days to exchange hands at over $2 per share, thanks to the relentless buying activity fueled by meme-stock traders.

“Bed Bath & Beyond is too far gone to be saved in its present form,” said GlobalData Retail analyst Neil Saunders. “All of this points to bankruptcy as being the most likely outcome.”

The recent struggles mark a sharp U-turn for Bed Bath & Beyond, one of the biggest U.S. retailers. The company has been operating successfully for the past five decades, known for its 20% off blue coupons and a broad spectrum of merchandise products.

But the company failed to make a successful transition to online shopping and kept competing with retail giants like Walmart (NYSE: WMT ) and Target (NYSE: TGT ). Bed Bath & Beyond also took a heavy blow during the coronavirus pandemic, when it was forced to shut down stores for a period of 2022 while rivals’ stores remained open.

The retailer saw its sales plunge by 17% and 14% in 2020 and 2021, respectively. It has attempted to pull off multiple turnaround strategies in recent years, such as hiring the former Target executive Mark Tritton, who exited the company in 2022 after serving less than three years as its Chief Executive Officer.

The downturn has forced Bed Bath & Beyond to explore different options to remain afloat, such as restructuring, fundraising, asset sales, and bankruptcy. The retailer raised $375 million in funding in August but could not persuade bondholders to swap out their investments for new debt.

Aggressive Cost Cuts

The company announced several cost-cutting measures last year, including closing 150 stores and reducing 20% of its corporate and supply chain workforce. Bed Bath has 950 stores and 32,000 employees as of Feb. 22.

On Wednesday, Bed Bath said it had initiated a new round of layoffs in order to survive the downturn, according to a memo delivered to employees. The company has initiated cost cuts of around $80 million to $100 million across the business.

BBBY also said it is removing the Chief Transformation Officer role and cutting its workforce “across our corporate, supply chain and store portfolio.” The company did not provide the number of employees affected by the layoffs.

CEO Sue Gove said:

“While we have taken several important initial steps in our turnaround plan with strong execution, our Q3 2022 results signal that it will take longer to translate actions into outcomes.”

Summary

Bed Bath & Beyond delivered a disappointing quarterly report just a few days after it sounded alarm bells about a potential bankruptcy filing. Still, the BBBY stock soared on the earnings report as Reddit-based retail traders continued to buy shares despite worsening fundamentals.

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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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