Bed Bath & Beyond's (BBBY +0.00%) stock plunged more than 80% over the past 12 months as its chances for survival dimmed with every passing quarter. The big-box retailer struggled to keep pace with Amazon, Walmart, Target, and other better-run retailers, and it failed to renovate its stores, refresh its products, and expand its e-commerce presence to stop the bleeding.
Bed Bath & Beyond's fate now hangs in the balance as it warns investors that filing for bankruptcy protection could be imminent. In a securities filing on Jan. 26, it warned that it "does not have sufficient resources" to repay its debt. Let's review the company's financial predicament and see where it might end up over the next 12 months.
Image source: Getty Images.
How ugly is Bed Bath & Beyond's balance sheet?
Bed Bath & Beyond hasn't grown its annual revenue nor posted an annual profit since fiscal 2017 (which ended in March 2018). Back in fiscal 2017, the company generated $12.3 billion in sales and a net profit of $425 million. But in fiscal 2021, it generated $7.9 billion in sales and racked up a net loss of $560 million.
For fiscal 2022, analysts expect its sales to decline 30% to $5.5 billion as its net loss more than doubles to $1.3 billion. However, its rapid deterioration over the past few quarters suggests those forecasts could still be too high.
The struggling retailer ended fiscal 2022's third quarter (ended November) with just $153 million in cash and cash equivalents. That represented a 70% decline from $509 million a year earlier. Meanwhile, its long-term debt rose 64% to $1.94 billion. Most of that debt comes from $1.2 billion in senior unsecured notes, which are split into three tranches that mature in 2024, 2034, and 2044. Bed Bath & Beyond pays the interest on those notes semi-annually on Feb. 1 and Aug. 1 every year.
Last November, it offered to exchange those unsecured notes for new senior secured notes (which are more likely to be compensated in the event of a bankruptcy) with later maturity dates and higher interest rates. But that offer expired in early January when it failed to attract enough interest from its creditors.
OTC: BBBY
Key Data Points
This means it's still on the hook for about $28 million in interest payments on Feb. 1. If it skips those payments, it will trigger a 30-day grace period before it defaults. Its 2024 notes currently trade at just five cents on the dollar, which implies that investors believe it has a mere 5% chance of staying solvent for another 18 months. Its 2034 notes are worth even less.
In addition to that long-term debt, it also owes $550 million under an asset-backed loan to JP Morgan Chase and $375 million to Sixth Street following the expansion of its credit facility last August. All of that leverage could make it nearly impossible for the company to secure fresh financing at reasonable rates as interest rates continue to rise.
What are the best and worse outcomes?
The best possible outcome for Bed Bath & Beyond is a buyout. Its investors would still get some cash (or new stock) for their shares, and its creditors would breathe a sigh of relief as another company takes on its debt.
But at this point, an acquisition doesn't seem likely. Bed Bath & Beyond's market capitalization might seem low at $300 million, but its enterprise value -- which includes its debt and other liabilities -- hovers at $3.9 billion. It wouldn't be a smart move for a larger retailer to step in at this point.
Another lifeline is a potential sale of Buy Buy Baby, its infant-oriented banner, which has been growing faster than its namesake stores. The chain might fetch $300 million to $400 million in a sale, according to Telsey Advisory Group analyst Cristina Fernández's recent comments in The Wall Street Journal, and keep the company solvent for a few more quarters.
Bed Bath & Beyond's remaining options aren't too appealing. It can continue to cut costs with more layoffs and store closures, try to raise cash with more debt and stock offerings, or finally file for bankruptcy protection to restructure its debt. In the latter event, all of its shareholders and unsecured debt holders would likely be wiped out.
Where will Bed Bath & Beyond be in a year?
As much as I like contrarian underdogs and turnaround stories, I don't think Bed Bath & Beyond will survive for another 12 months. It became complacent when it should have been aggressive, it bought back billions of dollars of shares when it should have been investing in its future, and it failed to recognize all those mistakes until it was far too late. Like Sears and JCPenney, it will likely become another casualty in the ongoing retail apocalypse.
