Bed Bath & Beyond (BBBY +0.00%) is all the talk on Wall Street these days. The stock has whipsawed through August, gaining as much as 700% thanks to a short squeeze driven by Reddit's WallStreetBets traders.
However, activist investor Ryan Cohen pulled the rug out from under the stock two weeks ago by selling his entire stake in the stock. That sent shares down more than 50%, but the stock has been on the rebound since then, driven by anticipation of its strategic update on Wednesday morning.
That, however, failed to deliver a convincing turnaround plan, and shares tumbled after the company announced a number of cost-cutting measures, including store closures and layoffs, as well as a new financing package.
OTC: BBBY
Key Data Points
A little cash could go a long way
Confirming earlier media reports, Bed Bath & Beyond said it is receiving $375 million in new financing from Sixth Street Partners, and it has also entered into an expanded $1.13 billion asset-backed lending facility from JPMorgan Chase, which combined gives the company more than $500 million in new financing.
That news comes as some vendors are refusing to give the retailer credit, afraid that it will be unable to pay its bills. Bed Bath & Beyond has already delayed payments to some vendors, but the new round of financing should help shore up at least some of these vendors' concerns.
The company's financials, meanwhile, show how distressed the retailer has become, and its management team is in disarray after the board ousted CEO Mark Tritton, who was originally tasked with turning around the flailing retailer, in June.
Like most home furnishing retailers, Bed Bath & Beyond has been hit hard by the shift in consumer spending over the last year as the economy has normalized from the pandemic. While spending on the home was all the rage in the early days of lockdowns and remote work, consumers are now putting their discretionary dollars back toward things like travel and restaurants. This means peers like Wayfair and RH, formerly called Restoration Hardware, have suffered as well.
In Bed Bath & Beyond's fiscal first quarter, revenue plunged by 25% to $1.46 billion, with comparable sales off by 23%. Under generally accepted accounting principles (GAAP), it lost $358 million, or a $225 million loss after adjustments, and its free cash flow loss was nearly $500 million.
On the balance sheet, it had $107.5 million in cash and $1.38 billion in long-term debt. Its current ratio is just above 1, meaning its current assets are only slightly higher than its current liabilities, an indication that it is having trouble paying its bills.
In its preliminary second-quarter update, little had changed, as revenue was expected to be $1.45 billion, which includes a comparable sales decline of 26% from the year-ago quarter. It also said it expected a $325 million free cash flow loss.
In other words, the financial picture is not an inspiring one, and it will likely take more than $500 million to put the company on the right path. This is unless the macroeconomic headwinds it's facing suddenly shift in its favor, especially considering the retailer burned nearly that much cash in the first quarter.
Can Bed Bath & Beyond be saved?
While the liquidity injection should help the company stay afloat and ensure that vendors continue shipping merchandise, the overall outlook looks bleak. Even before the pandemic, the company struggled to find its way in a highly competitive industry that has been disrupted by e-commerce, and it failed to adequately capitalize on the pandemic tailwinds to turn itself around. Meanwhile, its plunging revenue and wide losses speak for themselves.
Though meme stock traders can continue pumping the stock, the difficult macroeconomic environment, as well as a brand and business model in disarray, mean that a turnaround for the business is unlikely at best.
