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Bed Bath & Beyond will close hundreds of stores as part of its turnaround.
Justin Sullivan/Getty Images
Bed Bathroom and beyond
it came back from the brink of bankruptcy this week, closing a deal that promises a lifeline of more than $1 billion. But while the move should help the embattled retailer solve its more immediate financial woes, analysts say there’s no evidence it will fix the company’s underlying problems.
On Tuesday, Bed Bath said its stock offering secured $225 million, with the promise of receiving an additional $800 million in future installments. The capital will go to pay down its large debt and buy time to complete the implementation of its latest turnaround strategy, which includes closing stores and improving inventory and supply chain management.
Many on Wall Street, however, suspect the company will be in a similar position within months.
“Because we see a low probability that the company will meet its 2023 turnaround plan, we place little or no value on the company’s equity on a probability-weighted basis,” Wedbush analyst Seth Basham wrote in a Wednesday statement. research note. “Failure to raise the additional $800 million and/or an unsuccessful turnaround in 2023 could push the company back to the brink of bankruptcy.”
Basham, which has an Underperform rating on the stock, lowered its price target for the stock to $0 earlier this week. Wednesday raised it to 25 cents.
Bed Bathroom and beyond
did not answer by Barron request for comment.
In a filing with the Securities and Exchange Commission on Monday, the company acknowledged that it had “historically underperformed in executing management plans.” The current turnaround plan, meanwhile, is ambitious, especially given the retailer’s recent performance.
The company plans to reduce its selling, general and administrative expenses by up to $1 billion in fiscal 2023, according to the filing. In the most recent quarter, it spent $583.6 million on such expenses, down from $698 million in the year-ago quarter.
Bed Bath also expects comparable sales to grow in the mid-to-high single digits in fiscal 2023, with an adjusted gross margin in the low 30% range. Both metrics would represent a notable improvement over Bed Bath’s third quarter, when the company reported that comparable sales were down 34%, for an adjusted margin of 22.8%.
The company’s aggressive store closures will also limit its options: Bed Bath plans to close 150 stores by the end of fiscal 2022 and has a long-term goal to close over 400 additional stores. UBS analyst Michael Lasser estimates the closed stores would have generated about $1.2 billion in annual sales. While the company will likely keep “a portion” of those sales through other locations and its online channel, most will go to competitors like
Target
(
TGT extension
) A.D
Walmart
(
wmt extension
), Lasser wrote in a research note.
Diana Veras usually visits her local Bed Bath & Beyond in East Elmhurst, New York about once a week to stock up on beauty and home supplies. Now that the store is closing, she will likely start shopping at Target more often, she said.
“It’s going to mess up my shopping routine because [Bed Bath & Beyond] it’s the closest shop to my house,” he said.
The company’s turnaround plan also hinges on maintaining current supplier relationships and being able to “reestablish customary supplier terms,” according to the filing. Bed Bath’s supplier relationships took a hit when the company moved to a private label strategy. While they’ve since resumed that approach, dealings with outside brands have remained difficult. At the same time, sellers were reportedly spooked by the possibility that Bed Bath could go bankrupt; once suppliers lose faith in a retailer’s ability to pay them back, they become reluctant to ship more product, said DA Davidson analyst Michael Baker.
Supplier issues have left stores with undersized shelves. In January, CEO Sue Grove said the company was facing “lower inventory levels, in the 70% range.” This is a less than ideal recipe for wooing buyers.
Customers aren’t the only ones complaining about Bed Bath’s latest decisions. Even the shareholders don’t seem very happy. Since the company announced plans for its stock offering, shares in Bed Bath have tumbled, erasing some of its meteoric gains from earlier in the week. The stock fell 13% to $2.63 on Wednesday.
Monir Ahmed regularly frequents the same East Elmhurst store where Veras shops. He and his wife pop in at least once a week for everything from kitchen supplies to beauty products to just browsing the store. In the last couple of months, however, he’s seen the store’s supply dwindle. By Tuesday, the shelves were mostly empty, dotted with final sale posters.
“It’s really sad,” Ahmed said. “We need this store.”
Email Sabrina Escobar at [email protected]
