Just over nine years ago, Bed Bath & Beyond's (BBBY +0.00%) stock closed at its all-time high of $69.76 per share. At the time, the big box retailer's comparable store sales and earnings were rising, it was consistently returning its cash to investors via big buybacks, and its inventory levels were stable.
But today its stock trades 98% lower at less than $2 a share. Over the years, it fell behind Amazon, Walmart, Target (TGT +2.79%), and other better-run retailers. It failed to renovate its stores, refresh its products, and expand its e-commerce platform, and it relied too heavily on coupons and markdowns to drive its sales.
Image source: Getty Images.
The sluggish growth of several smaller banners that it acquired over the years (including Christmas Tree Shops, Cost Plus, and One Kings Lane) exacerbated that slowdown. Between fiscal 2016 and fiscal 2021 (which ended in Feb. 2022), its annual revenue fell from $12.2 billion to $7.9 billion. Analysts expect its revenue to decline 24% in fiscal 2022.
Bed Bath & Beyond's rapid deterioration, which was worsened by the pandemic and the inflationary headwinds over the past two years, suggests it will suffer the same fate as Sears, J.C. Penney, and other victims of the retail apocalypse. But at just 0.03 times this year's sales, could it be a deep value play for daring investors?
OTC: BBBY
Key Data Points
How dire is Bed Bath & Beyond's situation?
In late 2019, Bed Bath & Beyond hired Mark Tritton, Target's former chief merchandising officer, as its new CEO. Tritton tried to streamline the company by selling most of its non-core banners, closing down dozens of its weaker namesake stores, liquidating its excess inventories with steep markdowns, and expanding its online marketplace.
Its comps warmed up from the second quarter of fiscal 2020 through the first quarter of fiscal 2021 as the pandemic-related headwinds waned, but that recovery abruptly ended over the past year as inflation throttled consumer spending on discretionary goods. The company's gross margins also declined as it tried to reduce inventory levels with more markdowns.
|
Metric |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
Q2 2022 |
|---|---|---|---|---|---|
|
Comps Growth (YOY) |
(1%) |
(7%) |
(12%) |
(23%) |
(26%) |
|
Adjusted Gross Margin |
34% |
35.9% |
28.8% |
23.8% |
27.7% |
|
Inventories Growth (YOY) |
(22%) |
7% |
3% |
13% |
(1%) |
Data source: Bed Bath & Beyond. YOY = Year-over-year.
That ongoing decline resulted in Tritton's dismissal last June. The company has been led by director Sue Gove as an interim CEO since then, and it hasn't hired a permanent CEO yet. Laura Crossen, the company's chief accounting officer, has also been filling in as the company's interim CFO since Gustavo Arnal's suicide last September.
On Jan. 5, Bed Bath & Beyond provided a brief preview of its third-quarter earnings report, which is expected on Jan. 10. It expects its revenue to drop another 33% year over year to $1.3 billion, following a 28% decline in the prior year quarter, and for its net loss to widen from $276 million to $386 million.
It also said that based on its "recurring losses and negative cash flow from operations" in the first nine months of 2022, there was "substantial doubt" that it could stay in business. It said it would continue to "consider all strategic alternatives" such as restructuring its debt, seeking out new debt, selling its remaining assets, and even filing for bankruptcy protection.
This could be the end of Bed Bath & Beyond
Bed Bath & Beyond hasn't generated a full-year profit on a generally accepted accounting principles (GAAP) basis since fiscal 2017. Analysts expect its net loss to nearly double to $1.02 billion in fiscal 2022.
The company ended the second quarter of fiscal 2022 with just $135 million in cash and cash equivalents. It had a total liquidity of about $850 million after factoring in its recently secured loans, but was still shouldering $5.2 billion in total liabilities (including $1.7 billion in long-term debt). It paid $35 million in interest payments on that debt in the first half of fiscal 2022.
Bed Bath & Beyond needs to pay interest on $1.5 billion of those bonds on Feb. 1, but its warning on Jan. 5 suggests it might skip those payments to conserve cash. If that happens, a 30-day grace period will be triggered.
The company previously offered to exchange some new shares with its creditors to pay off some of debt, but that deal was broadly rejected. Even if it can raise enough cash to fulfill its interest payments this year, Bed Bath & Beyond could run out of time next August when its first tranche of $300 million in debt matures. Those 2024 notes are currently trading at about 20 cents on the dollar, which implies the market sees a 20% chance of paying back its principal.
This isn't a deep value play
Bed Bath & Beyond will likely post some terrible numbers on Jan. 10. It also warned that its 10-Q filing, which would give investors a clearer glimpse of its liquidity and debt, will be late. All these red flags suggest the company's days are numbered, so investors shouldn't consider it to be a deep value play.
