Shares in Bed Bath & Beyond (NASDAQ:BBBY) stock plunged after its deal to raise money through Hudson Bay Capital fell apart. The company said it would try to raise capital by selling $300 million in new shares instead.
Combined with an overnight fall of 7%, the company was due to open trading with a market capitalization of less than $65 million, a 52-week low.
Bankruptcy Lies Beyond
Hudson Bay walked away after preliminary results for the quarter ending in January disappointed analysts.
The home goods retailer estimated sales for the quarter at $1.2 billion, well below the consensus estimate of $1.43 billion. Comparable store sales were down 40-50% from the year before. Operating losses continued, but there was just a modest loss of cash, the company said.
Hudson Bay had been part of a planned $1 billion equity offering just last month, built on warrants for preferred stock, which advantaged new equity buyers in a bankruptcy. Just as it did in February, BBBY warned that a bankruptcy filing would be necessary if its equity raise fails.
Sue Gove has been interim CEO since July, trying to save the company after a disastrous strategy change by former CEO Mark Tritton. Tritton turned stores formerly known for selling brand name goods at off-price into curated collections of store brands during the Covid-19 pandemic.
Gove sold some of the company’s stores and closed others in a bid to raise cash. But the failure to get sell-through during the Christmas season was apparently too much for Hudson Bay. Since February, Gove said the company has managed to raise $360 million. This allowed it to cure a default on a previous credit agreement, repay some asset-based loans, and pay interest on senior notes.
The new “at the market” offering is being managed by a unit of B. Riley Financial (NASDAQ:RILY), which has a market cap of $818 million and says it provides “a private equity approach to investing.”
BBBY Stock: What Happens Next?
The latest offering looks like a last throw of the dice by Gove. Bankruptcy appears imminent. Whether that will be a Chapter 11 reorganization or a Chapter 7 liquidation remains to be seen.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
