Desperately thrashing in troubled waters, deeply embattled household goods retailer Bed Bath & Beyond (NASDAQ:BBBY) secured a much-needed financial lifeline. A vendor consignment deal on paper should allow the company to bolster its inventory shortfalls. Unfortunately, investors likely perceive the move as merely a desperate attempt to stave off bankruptcy. As a result, BBBY stock continues to fall.
Specifically, the once-proud retailing firm announced a vendor consignment program with ReStore Capital, a credit-focused investment manager providing creative financing solutions in the consumer, retail, commercial, wholesale and manufacturing industries.
Under this agreement, ReStore Capital will purchase up to $120 million, on a revolving basis at any given time, of pre-arranged merchandise from the company’s key suppliers to supplement inventory levels already sold at Bed Bath & Beyond and buybuy BABY, per the accompanying press release.
In part, Bed Bath & Beyond President and CEO stated that “[w]e remain relentless in executing plans that can help us overcome near-term operational and financial challenges. Our new vendor consignment program enables us to increase our inventory position in top items that customers are buying and improve the customer experience.”
Unfortunately, investors were unimpressed with the announcement, sending BBBY stock down about 6% in late-afternoon trading. Fundamentally, the retailer appears only to be delaying the inevitable.
BBBY Stock Runs on Fumes
What really bothers investors regarding BBBY stock centers on the underlying enterprise falling into an uncontrolled spiral. According to CNN, the retailer suffers ongoing revenue droughts and mounting losses because it doesn’t have the funds needed to stock its near-empty shelves. Indeed, Grove admitted to failing to achieve company goals earlier this year because of the inventory dilemma.
However, fixing this problem won’t be easy. As CNN explained:
Retailers that are at risk of bankruptcy have trouble getting inventory from [their] suppliers without paying up front, as suppliers don’t want to end up as unsecured creditors in the event of bankruptcy filing. That is one of the reasons it’s difficult for a retailer to pull out of a downward spiral, as they compete with rivals that are not having to pay cash up front.
Here, the banking sector fallout doesn’t help matters for BBBY stock in the least. Amid depositor withdrawals due to fears of people and entities losing their funds, fewer companies are likely to be comfortable distributing inventory to troubled retailers.
In addition, the financial assistance might not be enough to save BBBY stock. Last week, Bed Bath & Beyond filed plans to sell $300 million worth of its stock to raise cash. Further, failure to sell this amount may lead to bankruptcy.
Why It Matters
At its peak price point, BBBY stock averaged around $80 a pop. Today, it runs in literal penny-stock territory. As well, TipRanks notes that BBBY secured a dubious honor: a rare unanimous “strong sell” view.
On the date of publication, Josh Enomoto did not have (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.