Bed Bath & Beyond ( BBBY ) had a brutal 2022.
With debt and losses piling up, the home goods retailer warned Thursday that bankruptcy was imminent. According to one industry expert, the end may be sooner than expected.
“I think it’s inevitable that they will file,” Macco CEO Drew McManigle told Yahoo Finance Live (video above). “I wouldn’t be surprised to see them file as soon as this weekend. There’s no reason not to … I wouldn’t be surprised if the Chapter 11 filings haven’t been drafted yet and are just pending signatures.”
Bed Bath & Beyond sales have been in bad shape since 2018. The company is currently facing a loss of 385 million dollars. Investors’ reaction to the stock is also pretty dismal — shares fell 29% on Thursday after news of the potential bankruptcy, closing at $1.69 a share.
“Like an emergency room, if the patient dies, what difference does it make?” McManigle said. “So the premise of a turnaround is to save the company so it can fight another day. I don’t think Bed, Bath & Beyond is going away.”
The turnaround efforts were in vain
Despite the restoration efforts by Bed Bath & Beyond, McManigle isn’t convinced that much will change anymore.
“I suspect they are working on their debtors in the ownership financing,” he said. “I think their filing is true … They tried to come up with a turnaround plan, but they came to it late and it wasn’t deep enough or far enough.”
The pivots to boost sales were first implemented in 2021 by CEO Mark Tritton. Under Tritton’s leadership, the recovery has meant a post-pandemic turnaround, with a “mix of physical and digital” and some store closures.
Bed Bath & Beyond soon ran out of money. In March, the debt burden was about $3 billion, part of which the company paid through its own shares. By the end of June 2022, the operating loss was $224 million and Tritton was replaced by current CEO Sue Gove.
“Cash is the lifeblood of these businesses,” McManigle said. “If you run out of cash, you’re out of business. And that’s one of the things that affects Bed Bath & Beyond.”
The company previously raised $500 million in funding in August 2022 and used a lifeline to close about 150 underperforming stores (about 20%) across the country.
According to McManigle, though, that number is “just not enough.”
“We would go in and look at every store,” he said. “And if it was losing money and sales weren’t right, we’d shut it down. You’re going to break a few eggs in the turnaround, including the stock price.”
What does bankruptcy mean?
Bed Bath & Beyond has a lot of faith in its vendors. After a company declares bankruptcy, vendors cannot sue the company to claim their checks.
“As a result, [vendors] tighten credit conditions, which means Bed, Bath & Beyond can’t fill its stores with inventory for sale,” McManigle explained. “So the bankruptcy process allows creditors and others to stay in business in a process that gives some relief. the owner will be in debt. It’s going to be a bit of work as usual as you try to change your business plan.”
At the same time, it is necessary to evaluate the value of the brand. A company needs to increase its brand value to make the whole business ready to buy.
In McManigle’s eyes, Buy Buy Baby and the company’s Harmon pharmacy chain both have market value. In Chapter 11 bankruptcies, companies typically want to maximize that value in order to find someone willing to buy part or all of the business.
As of January 5, Bed Bath & Beyond’s market value is $198 million.
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Tanya is a data reporter for Yahoo Finance. Follow him on Twitter @tanyakaushal00.
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