With Bed Bath & Beyond (NASDAQ:BBBY) facing multiple, likely insurmountable challenges, the retailer appears to be headed straight to bankruptcy. Given the tremendous volatility and unpredictable nature of the stocks of bankrupt companies, I recommend that all investors immediately sell BBBY stock.
Among the seemingly insolvable problems that Bed Bath and Beyond is facing are an inability to raise much cash and a goods shortage-revenue spiral. Also plaguing the retailer is consumers’ preference for experiences over goods.
Finally, the selection by the retailer of Sue Gove as its CEO back in October indicates that it was resigned to declaring bankruptcy even then.
Here are more details about each of these items.
|BBBY||Bed Bath & Beyond||$0.45|
An Inability to Raise Meaningful Amounts of Cash
In late March, Bed Bath and Beyond launched an initiative to obtain as much as $300 million by selling BBBY stock. That’s a significant amount of money that could have staved off the retailer’s bankruptcy for a meaningful amount of time.
On April 12, however, the company disclosed that it could raise only $48.5 million through the initiative. That’s a paltry sum for a large national retailer, and those funds will not delay the retailer’s bankruptcy for more than a few weeks.
Moreover, the fact that the amount of money raised by the stock sale came in tremendously below the retailer’s target shows that it has little or no ability to raise money from investors.
A Goods Shortage-Revenue Spiral
Bed Bath and Beyond appear to be caught in a classic, downward goods shortage-revenue spiral. In January, CNBC reported that “brands and vendors have been hesitant to extend credit to Bed Bath as its mounting debt cast doubt over its ability to pay back bills.”
In other words, the company has had trouble obtaining products because its suppliers are afraid to let BBBY buy their offerings on credit. Consequently, Bed Bath and Beyond’s shelves have probably been pretty bare, turning off the consumers who do visit its stores. As a result, the company has likely lost much of its customer base already. Indeed, in January, the company’s top line tumbled a horrifying 33% year-over-year.
And with the company’s revenue tumbling, it lacks the money to buy many products in cash, starting the downward cycle again.
On April 5, in an effort to stop the downward spiral, BBBY announced that it had signed a “$120M vendor consignment” deal. Under the program, a lender, ReStore Capital, will buy as much as $120 million of merchandise for Bed Bath and Beyond. However, the deal is probably a case of “too little, too late” to stop the downward spiral, which appears to have lasted many months already. Moreover, the retailer is probably paying high interest on ReStore’s purchases, pushing it closer to bankruptcy.
Consumers’ Preference for Experiences Over Goods
In previous columns, I’ve noted that, in the wake of the coronavirus pandemic’s lockdowns, consumers are spending much more money on “experiences,” such as vacations and restaurants, than retailers’ products.
CNBC put it this way: “After spending the earlier years of the Covid pandemic at home, more people are choosing to spend money on dining out or booking trips rather than buying cookware, a duvet or throw pillows.”
Of course, that trend is very negative for Bed Bath & Beyond, which specializes in selling household products, including cookware, duvets, and throw pillows.
While I believe that the trend will be reversed later this year as consumers’ thirst for experiences gets satiated, the latter change will probably come much too late to prevent Bed Bath & Beyond from throwing in one of the towels that it was unable to sell.
Gove’s Promotion Was a Bad Sign
As I noted in an Oct. 26, article, on that day, BBBY disclosed that it had promoted Sue Gove to permanent CEO from her previous title of interim CEO. About two years after Give left her previous company, Golfsmith International, the latter retailer declared bankruptcy. It seems that if Bed Bath & Beyond thought it had a good chance of avoiding bankruptcy and wanted to fight to prevent that fate, it would have hired someone with a stronger track record than Gove.
Gove, who has been on the retailer’s board for nearly four years and appears to have spent most of the eight years between 2014 and 2022 serving on various companies’ boards, seems like someone a company would hire to manage a bankruptcy rather than a vigorous turnaround effort.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.