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Bed Bath & Beyond bankruptcy: What BBBY shareholders need to know

By Mensholong Lepcha

Edited by Jekaterina Drozdovica

15:22, 6 January 2023

ed Bath and Beyond store exterior.
BBBY stock plunged about 30% on 5 January on bankruptcy concerns Photo: Juan Llauro / Shutterstock

Bed Bath & Beyond (BBBY) share price plunged to a near 30-year low on 5 January 2023 after the company warned that it could file for bankruptcy.

Although Bed Bath & Beyond noted various alternatives that the company could take in order to revive its business, market experts believed that a BBBY bankruptcy was possible.

What will happen if BBBY files for bankruptcy and will Bed Bath & Beyond go out of business? Let’s find out below.

Bed Bath & Beyond (BBBY) live stock price

What is Bed Bath & Beyond?

Bed Bath & Beyond is a retail store operator that sells home furnishings, beauty and wellness, and baby products. 

The company is based in New Jersey, US. It was founded in 1971 by Warren Eisenberg and Leonard Feinstein. Bed Bath & Beyond stock is listed on the Nasdaq Stock Exchange under the ticker symbol BBBY.

As of February 2022 full-year report, Bed Bath & Beyond operated 953 retail stores across the US, Puerto Rico and Canada. The company has a joint venture that operates 11 stores in Mexico under the name Bed Bath & Beyond.

Bed Bath & Beyond issues bankruptcy warning

Bed Bath & Beyond warned shareholders on 5 January that the company could file for bankruptcy due to a shortfall in cash levels following poor sales performance.

The company added that it is considering several strategic alternatives including restructuring, debt refinancing, and additional debt to revive its business. Bed Bath & Beyond will also consider delaying its business activities and selling assets in order to turn around its business.

BBBY said net sales for the quarter ended 26 November 2022 were expected to fall by over 30% compared to the same period last year due to lower store footfall and reduced inventory. The company added that it expected a net loss of about $385.8m for the third quarter of fiscal 2022. The firm’s CEO Sue Gove commented:

“Despite more productive merchandise plans and improved execution, our financial performance was negatively impacted by inventory constraints as we partnered with our suppliers to navigate both micro- and macro-economic challenges.

“Reduced credit limits resulted in lower levels of in-stock presentation within the assortments that our customers expect. Consequently, we have already leveraged the liquidity gained from the holiday season to immediately pursue higher in-stock levels with support from our key vendors.”

The company said it had commenced an exchange offer to refinance its unsecured senior notes which expired on 4 January. However, the deal was terminated after the conditions of the exchange offer were not met.

As of 27 August 2022, the company’s long-term debt stood at $1.729bn and cash in hand at $166.7m. BBBY is expected to announce its third-quarter earnings on 10 January 2023.

BBBY stock price fell 29% to $1.63 on the day of the announcement, reaching its lowest level since February 1993, as the company said it was considering “obtaining relief under the U.S. Bankruptcy Code”. 

Bed Bath & Beyond stock price, 2017 - 2023

Bed Bath & Beyond stock price, 2017 - 2023

Past performance is not a reliable indicator of future results

Source: NASDAQ, via TradingView

What does BBBY bankruptcy mean for shareholders?

It’s important to note that a company can file for two types of bankruptcy – Chapter 11 and Chapter 7. 

Under Chapter 11 bankruptcy, a company provides a plan to reorganise its business. It aims to get out of debt and be profitable again. 

Day-to-day operations will continue to run but major corporate decisions will have to be approved by the bankruptcy court. The company’s stock and bonds will continue to trade on the market.

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The bankruptcy plan laid forth by the company will have to be approved by creditors, bondholders, stockholders and court. Although the court has the power to overrule the vote and approve the bankruptcy plan if it finds the plan suitable for the parties involved.

On the other hand, Chapter 7 bankruptcies are filed by companies that are too deep into debt and have no way out. These companies cannot continue their business operations therefore their assets are sold for cash by the court in order to pay off creditors.

As of 5 January 2023, Davis Selected Advisers, Capital Research & Management and The Vanguard Group were the top three institutional shareholders of BBBY with a combined stake of 32.1%, data compiled by MarketScreener showed. 

Potential scenarios of Bed Bath & Beyond bankruptcy  

  • Exchange delisting

During an ongoing Chapter 11 bankruptcy, a company may not be able to meet the listing requirements of the Nasdaq Stock Exchange or the New York Stock Exchange (NYSE).

In such an event, the company’s stock will be delisted from the exchanges. The stock may continue trading on over-the-counter (OTC) markets.

  • Liquidation

In the event of a liquidation, secured creditors are paid first. Unsecured creditors are paid next. Secured creditors are often banks while unsecured creditors are usually banks, suppliers and bondholders.

Shareholders have the last claim during bankruptcy and may not receive anything if secured and unsecured creditors are not fully paid.

“The bankruptcy court may determine that stockholders don't get anything because the debtor is insolvent. If the company's liabilities are greater than its assets, your stock may be worthless,” said the SEC.

  • Success reorganisation

Shareholders should be aware that even if a company is successful in reorganising its business, the ownership structure of the reorganised company will be different.

“In most instances, the company's plan of reorganisation will cancel the existing equity shares. This happens in bankruptcy cases because secured and unsecured creditors are paid from the company's assets before common stockholders. And in situations where shareholders do participate in the plan, their shares are usually subject to substantial dilution,” said the SEC.

The SEC added that there can be two different types of common stock for a company that comes out of bankruptcy. 

The old common stock represents shares on the market at the time when the company went into bankruptcy. It will trade with a five-letter ticker that ends with ‘Q’. The new common stock ticker will not end with ‘Q’. Investors need to be aware of which stock they are purchasing.

Analyst views on Bed Bath & Beyond stock price

The general mood about Bed Bath & Beyond was one of extreme pessimism at the time of writing (6 January). This comes in stark contrast to BBBY stock price action not long ago when the firm became the latest meme stock to soar as much as 500% in August 2022.

On 6 January 2023, Reuters reported citing people familiar with the matter that the retailer is preparing to file for bankruptcy in the coming weeks and has hired turnaround experts AlixPartners LLP to plan its next course of action.

Meanwhile, KeyBanc Capital Markets analyst Bradley Thomas drastically downgraded his 12-month Bed Bath & Beyond stock price target to 10 cents from $2.

Wells Fargo and Telsey Advisory Group cut their BBBY stock price target to $2 from $3 on 5 January 2023 following BBBY bankruptcy concerns, MarketBeat data showed.

Danni Hewson, financial analyst at AJ Bell, noted that the bankruptcy announcement comes as the retailer has fallen short of keeping up with the post-pandemic environment:

“Once a household darling, this is a company that’s failed to keep up with changing retail trends and took a real hit when it closed stores during the Covid pandemic. It’s been trying to forge a way forward but despite a myriad of turnaround strategies none has hit the sweet spot. It became the stock to bet against and it seems this hand might well be the one to finally deal it out.”

Final thoughts on Bed Bath & Beyond bankruptcy

When researching Bed Bath & Beyond bankruptcy, it’s important to remember that analysts’ forecasts on Bed Bath & Beyond stock price can be wrong. We encourage you to always conduct your due diligence by reading the latest news, conducting technical and fundamental analyses, and studying a wide range of commentary. 

Remember, your decision to trade should depend on your attitude to risk, your expertise in the market, the spread of your portfolio, and how comfortable you feel about losing money. You should never trade more than you can afford to lose

FAQs

Who owns Bed Bath & Beyond?

Davis Selected Advisers, Capital Research & Management and The Vanguard Group were the top three shareholders of BBBY, according to data compiled by Market Screener as of 6 January.

Why is Bed Bath & Beyond failing?

BBBY fell to a near 30-year low on 5 January 2023 after the company warned that it could file for bankruptcy.

Can Bed Bath & Beyond recover?

BBBY warned that it could file for bankruptcy. If BBBY does file for a Chapter 11 bankruptcy, the company might make a comeback if its recovery plan is approved by creditors, bondholders, shareholders and the bankruptcy court.

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