Bed bath and beyond (BBBY) had a brutal 2022.
As debt and losses mount, the homeware chain warned on Thursday that bankruptcy approach. And according to an industry expert, the end could be much sooner than expected.
“I think it’s inevitable that they’ll file,” Macco CEO Drew McManigle told Yahoo Finance Live (video above). “I wouldn’t be surprised to see them file as early as this weekend. There’s no reason not to…I wouldn’t be one to be surprised if the Chapter 11 petitions haven’t already been drafted and are just waiting for a signature.
Bed Bath & Beyond’s sales have been in a dire state since 2018. The company is currently in a loss of $385 million. Investor sentiment towards the stock is also rather bleak – following news of a likely bankruptcy, shares fell 29% and closed at $1.69 per share on Thursday.
“Kind of 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 has another fight another day. I don’t think Bed, Bath & Beyond will do that.”
Failed recovery efforts
Despite Bed Bath & Beyond’s recovery efforts, McManigle isn’t convinced it will make more of a difference.
“I suspect they worked on financing their debtor in possession,” he said. “I think it’s a done deal that they’re filing… It was valiant that they tried to put a turnaround plan in place, but they came in late, and it wasn’t deep enough or deep enough. far.”
Turnarounds to boost sales were first implemented by CEO Mark Tritton in 2021. Recovery under Tritton meant a remodel with “physical and digital fusion and bouncing back from the pandemic with some store closures.
Soon, Bed Bath & Beyond simply ran out of money. Indebtedness in March was nearly $3 billion some of which the company reimbursed via its stock. At the end of June 2022, the operating loss was $224 millionand Tritton was replaced by the current CEO Sue Gove.
“Money is the lifeblood of these businesses,” McManigle said. “If you run out of money, you’re bankrupt. And that’s one of the things that affected Bed Bath & Beyond.”
The company previously secured $500 million in funding in August 2022 and used the lifeline to close approximately 150 underperforming stores (approximately 20%) across the country.
According to McManigle, however, that number “just isn’t enough.”
“We would have walked in and looked at every store,” he said. “And if it was losing money and the sales weren’t relevant, we would have closed it. In turnarounds, you’re going to break a few eggs, including the stock price.”
What bankruptcy means
Bed Bath & Beyond is highly dependent on its suppliers. Once the business has filed for bankruptcy, sellers will not be able to sue the business to demand their checks.
“Therefore, [vendors] tighten their credit terms, which means Bed, Bath & Beyond can’t fill their stores with inventory to sell,” McManigle explained. “So the bankruptcy process allows you to stay in business under a process that gives creditors and others some comfort that there is going to be a debtor in possession. It will be business as usual as you try to get your business plan rolling.
In the meantime, the value of the brand must be assessed. A business would need to increase its brand value to get the whole company ready for purchase.
In McManigle’s eyes, the company’s Buy Buy Baby and Harmon drugstore chain both have some market value. In the case of Chapter 11 bankruptcies, companies would generally want to maximize this value in order to find someone who would want to buy the business, in part or in whole.
As of Jan 5, the market capitalization of Bed Bath & Beyond stands at $198 million.
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Tanya is a data reporter for Yahoo Finance. Follow her on Twitter @tanyakaushal00.
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