Bed Bath & Beyond faces bankruptcy: BBBY considers future - details in full
By Jenal Mehta
11:16, 6 January 2023
US retailer Bed Bath and Beyond (BBBY) lost more than 30% of its share value overnight as news broke that it is considering filing for bankruptcy.
As part of a strategic debt restructuring, the company said in a statement it is not ruling out “obtaining relief under the US Bankruptcy Code”
BBBY among the so-called meme stock favourites, along with GameStop (GME) BlackBerry (BB), AMC Entertainment (AMC) and a number of others. These were popularised by retail traders on online forums.
The retailer’s persistently high debt levels and struggling balance sheet may put off some of these speculative traders.
Bed Bath and Beyond (BBBY) Price Chart
BBBY’s financials have been concerning for a while now. The company has built up $1.7bn in long term debt which it has been struggling to repay. This amount is double what it held in 2021. Its current debt to equity ratio is at around 6, while a healthy level is considered to be less than 2.
The company's cash on hand peaked during the last quarter of 2020 at $1.3bn after which the levels have steeply declined to $13m by the end of 2022.
It decided to partly finance its debt with a $376m short term loan from Sixth Street Partners in August 2022.
BBBY has also attempted to lower its debt levels by issuing bonds before terminating the plan after not enough holders were interested in satisfying the issue’s conditions.
Along with its stock, the company’s currently issued bonds maturing next year also dropped in price from 22 cents per USD to 12 cents. Its longer term bonds maturing in 2034 also fell from 10 cents to 6 cents.
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GameStop (GME) Price Chart
During the third quarter of 2022, BBBY’s net sales lowered by 32%. It cited “lower customer traffic and reduced levels of inventory availability” as the main reason behind this.
President and CEO Sue Gove said “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.”
While this may seem to be a reasonable challenge facing the company considering the current economic conditions, BBBY is unique in its inability to provide sufficient stock in recent months. Most retailers did not face an inventory shortage despite the rise in inflation.
Danni Hewson, AJ Bell financial analyst comments: “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.”
Are Meme Stocks dead?
Despite these concerns with the company, there is a chance of retail investors holding up demand for the stock, like the trend that was seen after GameStop’s announcement of bankruptcy.
However this time the fall in investor interest has affected all meme stocks, which may mean BBBY will not face the same post-bankruptcy announcement chaos as GME did.
Research by Vanda Research lead by Iachini, Lucas Mantel and Giacomo Pierantoni there has been a sharp fall retail investment in the meme stock genre between 2021 and 2022.
“Despite a jump in inflows during Q1 2022 and then later in the summer when retail traders attempted to make up for early losses by doubling down on these high-beta names, meme stocks saw retail purchases decidedly fall this year. The same holds when looking at these names' activity in the options market. We believe that large portfolio losses accumulated at the aggregate level are behind this drop in speculative behaviour.
“Sure, we could still see occasional bursts of euphoria driven by tactical rebounds across some of the names in the meme world, but there must be a clear inversion of trend (i.e., aggregate turnover and equities up) to push this segment of investors to start trading heavily again."
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