Bed Bath & Beyond posted a worse loss of $393 million in the third quarter ended Nov. 26, pushing its losses to date to more than $1.1 billion in the fiscal year. Sales were down 33 percent compared to the same three months last year.
“What we’re seeing is a noisy situation, and it’s been a really long time coming,” said Neil Saunders, chief executive of analyst firm GlobalData. There has been a “mild erosion of customers…year after year”.
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On Tuesday’s earnings call, Chief Executive Sue Gove said the company is working with a team of consultants as it looks to cut costs by between $80 million and $100 million. It is proceeding with plans to close 150 stores announced in August and says an undisclosed number of workers are being laid off.
“I don’t think it’s going to be enough to rebalance the book because the losses are just horrendous and they’re still in this dire straits,” Saunders said.
Gove did not say that the Chapter 11 filing, which allows troubled companies to save themselves through debt restructuring, is clear cut. A company spokesperson said in a statement to The Washington Post on Friday that “multiple avenues are being explored and we are carefully and timely determining our next steps.”
But public recognition generally means there’s no going back, said Patrick Collins, a partner at Farrell Fritz, a New York-based law firm who focuses on bankruptcy and corporate restructuring.
“It becomes inevitable,” Collins said. “Because if you’re a supplier and you hear this, you’re not going to give Bath Bath & Beyond credit anymore, you’re going to insist on cash on delivery.”
If there is a bankruptcy filing, Mark Cohen, director of retail studies at Columbia University, expects it to happen soon. Most companies file in January because they haven’t paid their vendors and have fresh cash from holiday sales that can be used to pay legal fees in bankruptcy proceedings.
Cohen added that the company’s odds are even Straight to liquidation through a Chapter 7 filing.
“Absent a suitor who either buys the company, or injects the company with very visible cash, or takes on the company’s debt and takes it into prepackaged bankruptcy, the company is toast,” Cohen said.
“Terrible, Terrible Mistake”
Founded in 1971, Bed Bath & Beyond was one of the first large retailers specialty store area. It has become a destination for housewares, small kitchen appliances, wedding registries and college dorm supplies. But business began to cool in 2010, Saunders said, as Amazon, Wayfair, Walmart, Target and other brands beefed up their homeware lines. (Amazon founder Jeff Bezos owns The Washington Post.)
At the same time, the company has made some misses, such as the acquisition of One Kings Lane in 2016 for $12 million. Bed Bath & Beyond sold the online home decor company in 2020.
Mark Tritton, who took over as CEO of Bed Bath & Beyond in 2019, moved to revamp the retailer’s private-label house brand in an effort to replicate the success he had as head of merchandising at Target. He shifted his focus and resources, but investment did not pay, said Cohen.
He made other unsound decisions before being replaced by Gove last June, Cohen said, including presiding over a $1 billion share buyback.
“Whether he did it because he didn’t know what he was doing or he was pushed to do it, it was a terrible, terrible mistake,” Cohen said.
And with many of its competitors struggling with excess inventory, Bed Bath & Beyond has been a mixed bag. Saunders said its supply chain operations were poorly managed. Some shelves were stuffed to the brim while others were bare. And coupons, almost synonymous with Bed Bath & Beyond, became a necessary evil. Discounts became a burden on the company’s bottom line, but also what brought in customers.
“It takes a long time to shift the focus of the customer, much less to move the needle on the millions of ‘X’ percent off coupons that have been in people’s mailboxes for years,” Cohen said.
The era of free online returns is coming to an end
Although the company was able to ride the wave of consumer spending during the pandemic, when Americans had to spend more time at home. — it failed to capitalize on the momentum, Saunders said. Then, as the economic climate changed, persistently high inflation reduced Americans’ discretionary purchases. This hurt most retailers, but “Bed Bath & Beyond took a hit like no other retailer had seen,” Saunders added.
According to analytics firm Placer.ai, foot traffic fell sharply, down 26.5 percent year over year in December.
“Customers don’t readily dine in empty restaurants, they don’t readily go to empty malls, and they certainly don’t go to stores with empty shelves,” Cohen said.
Over the past four months, as news of Bed Bath & Beyond’s dwindling cash flow and poor performance spread, many sellers decided it was too risky to offer the company’s products on credit. If he files for bankruptcy, there’s a good chance they won’t get paid.
The chain apparently has several other options. Experts say the best option is to file for Chapter 11 protection or find an interested party to buy the debt.
“My guess is that there are vultures out there that are thinking or thinking about swooping in and basically taking control of the company through its debt, payments and other debt,” Cohen said.
But it had to come at “an absolute bargain, knockdown price,” Saunders noted.
A report emerged on Friday that the company is in talks with private equity firm Sycamore Partners to sell its Buy Buy Baby subsidiary and other assets. A New York Times article, citing unnamed people close to the matter, said deals with other parties are also in the works.
In a statement to The Post, the retailer declined to discuss the potential sale. “We do not comment on speculation of this nature.”
The company’s shares fell 30.1 percent to $3.66 after the report, ending a blistering five-day rally that drew comparisons to Bed Bath & Beyond’s wild meme stock ride of the summer. It grew more than 350 percent in August, fueled largely by online message boards.
Saunders doubts Bed Bath & Beyond can turn itself around if it files for bankruptcy. It is too focused on staying afloat rather than forming a long-term strategy, he said.
“The thing is, just because you save a ship from sinking, that doesn’t mean you own the ship,” Saunders said. “You just have a ship that you can’t go under. But you’re still at real risk of going deep in the future.”