Bed Bath & Beyond ducks analysts after posting nearly $400M loss in Q3

Bed Bath & Beyond on Tuesday reported a third-quarter loss of $393 million after early holiday sales failed to provide a respite from the months’ long cash burn that led to warnings of a possible bankruptcy.

The home goods seller has been struggling with a dwindling cash pile as vendors have been demanding payments more swiftly. Also, sales have been slammed across the home goods and decor sectors as the economy has slowed.

Bed Bath & Beyond said last week it was exploring options, including bankruptcy, after taking on of $375 million in financing in August and failing this month to convince bondholders to swap out their investments for new debt. Last year, the company said it would close 150 stores and lay off corporate employees among other cost-saving measures.

“It’s clear to us that ‘behind the scenes’ conversations are pointing in the direction of bankruptcy,” Wells Fargo analyst Zachary Fadem said in a note.

The company did not indicate whether it would file for bankruptcy protection. Last week it said it was working with outside advisers to explore options after years of weakening sales.

Bed Bath & Beyond did not take questions from analysts on its Tuesday conference call “in light of the ongoing review of strategic alternatives,” said Susie Kim, head of investor relations.

Its shares jumped 28% to $2.07 as retail investors speculated it could be a potential acquisition target and as short-sellers closed out bets on the stock falling.

The New Jersey-based company’s quarterly loss for the fiscal third quarter ended Nov. 26 includes an impairment charge of about $100.7 million, that the value of its inventory is below its original estimates.

“It’s definitely a cause for concern,” said bankruptcy lawyer Daniel Gielchinsky, who does not represent Bed Bath & Beyond.

The company reported $153.5 million in cash and cash equivalents, a steep year-over-year decline from $509 million which could make it challenging for the retailer to secure more merchandise for its stores.

Bed Bath & Beyond said it started cost reductions of about $80 million to $100 million across the business.

Net sales fell 33% to $1.26 billion in the quarter as inflation strained consumers’ pockets. Foot traffic fell 23.1% in November from the previous year, according to data from Placer.ai.

Inventory fell to $1.44 billion in the third quarter, down 24.9% year-on-year, after the retailer shed some of its own brands including Wild Sage and offered steep Black Friday discounts to move merchandise.

Chief Executive Sue Gove said Bed Bath & Beyond did not meet its goals in changing its assortment as it dealt with “credit line constraints” and vendors seeking quicker payments.

“This led to lower receipts and, therefore, lower in-stock levels, in the 70% range, which hampered our sales further in an already competitive environment,” Gove said.

The retailer’s recent emphasis on private-label brands led it to cut back on orders of nationally branded merchandise, hurting its relationships with some vendors, one former Bed, Bath executive said.

The big-box retailer is considering skipping its debt payments due on Feb. 1 to conserve cash ahead of a possible bankruptcy filing, Reuters reported earlier.

Morningstar analyst Jaime Katz expects a Bed Bath & Beyond bankruptcy filing in the first half of 2023. She pointed to “the unwillingness of lenders to participate in a debt swap” as evidence creditors are unlikely to take on “incremental financial” risk.

More than 155 million shares of the stock had traded by midday Tuesday, with Morningstar’s Katz saying the share price probably rebounded due to short-sellers covering their bets. Short sellers borrow shares to bet on declines. Buying back stock when closing a bet can help boost the share price.

The retailer reported a non-GAAP loss of $3.65 per share, wider than Wall Street’s estimate of a loss of $2.23 per share.