Bed Bath & Beyond is a godsend? (2023)

It seemed so less than a decade agoit all came down to Bed Bath & Beyond. The housewares company, founded in 1971, had held its own up to that point.other retailers disrupted. Sales were strong and the longtime management team was strong. Consumers liked the many coupons that never expired and loved the generous return policy. In his room, she seemed to have it all figured out... until she didn't. Now the company is facing possible bankruptcy and its share price has plummeted.

On Tuesday, January 10, Bed Bath & Beyondreporteda net loss of $393 million for the most recent reporting quarter ended November 26, 2022 and a 33 percent decline in revenue. The dismal earnings release wasn't entirely unexpected: The week before, Thursday, January 5, Bed Bath & Beyondcalledin a regulatory filing that it is experiencing a liquidity crisis and "substantial doubt exists about the company's ability to continue as a going concern," meaning that it may not be financially stable enough to support its expenses and meet its obligations . In the most recent quarter, the company had long-term debt of $1.9 billion. Heburn money fast, andFundraising Opportunitiesfor more hint are limited.

For those who have been paying close attention, this latest development comes as no surprise: Bed Bath has been looking ugly for a while now.

A quick look at Twitter reveals the company's problemsseveral he complainspointing out its eCommerce flaws. A client in early January.complained to dealerthat they brought a bad umbrella to the store and ordered a new one, only to receive the same umbrella back. Many customers who once loved the seemingly endless range of products (see:Diewide cityBed Bath-Folge) now holdempty shelvesYmediocre inventory. The company is in a precarious financial situation.

“Bed Bath & Beyond is too far gone to save in its current form. A catalog of missteps has bankrupted the company and made it increasingly irrelevant,” Neil Saunders, managing director and retail analyst at GlobalData Retail, wrote in a Jan. 5 research note following the filing. Bed Bath Regulatory. "Only very radical measures will allow him to survive, and even if he does, he will be a shadow of himself."

Bed Bath has fallen behind the e-commerce curve and it's hard to catch up. It has ceded market share to giant retailers like Amazon, Target and Walmart, while facing stiff competition from smaller companies like Wayfair and HomeGoods. Efforts to orchestrate a change, including at launchown brandsthey have collapsed.Deliveryand customers are increasingly frustrated.

Bed Bath has also spent billions of dollars on share buybacks, meaning it has used cash to buy back its own shares on the open market over the years. That's money you could use now, if you had it, to try to reinvent yourself. However, it is not clear what this reinvention could look like, bankruptcy or not.

“They can't be the store that has everything because they're not. They can't be a premium guy like Williams Sonoma because they're not. They can't be bargain hunters like HomeGoods because they're not," said Warren Shoulberg, a veteran retail journalist who writes forWarrensReport.com, In an interview. "So what are they doing? I don't know."

The landscape changed and Bed Bath did not

There is no single factor at the heart of Bed Bath & Beyond's problems, but a series of problems that led to its slow demise.Net profit began to decline steadilyin the 2010s and turned negative largely after 2019, as the company lost ground to competitors that proved more agile and suited to the changing market landscape.

Bed Bath's business model was: "We have more stuff than anyone, so you come here to buy it, and we have decent prices," Shoulberg explained. He lured customers back with his iconic blue and white coupons that conveyed the feeling that the entire store was always on sale.

This value proposition worked for a while, but not forever. "This guy called Amazon came up and said, 'No, we actually have a lot more than them, we have more than anybody and our prices are decent,'" he said. After that, Bed Bath never found a value proposition or, to put it more bluntly, a real raison d'être. His coupons were nice and his return policy generous (now it is less generous), but that was not enough.

At the same time, Bed Bath & Beyond was a slow entrant into e-commerce, and unlike clothing and furniture, it sells a ton of things that people are usually pretty comfortable buying online without even looking at. Bed Bath also has a TV section with items that are not meant to be experienced before purchasing. They eventually got the ball rolling, but never put the resources in to land it.

“Your website was a bit clunky, difficult to use, took a long time to get articles. If you ordered online, they certainly didn't arrive in two days like Amazon would," Wall Street Journal reporter Suzanne Kapner said in aAugust-Podcast-Interview. “They were behind the curve when it came to e-commerce and all these new technology features that retailers were adding. They had fallen so far behind that it was really starting to affect their sales.”

He added that part of the problem is a broader company-wide culture of frugality and a "forest for the trees" mentality that has left business leaders blind to the big picture of e-commerce. Over time, Amazon wasn't Bed Bath's only e-commerce problem.

"They had to compete with Amazon and they had to compete with Wayfair, and Wayfair is very good at e-commerce," Shoulberg said. "Wayfair is a tech company that just happens to sell home furnishings."

Changes to the top did not generate $$

Activist investors took note of Bed Bath's struggles and launched a month-long campaign in 2019 to make change at the retailer, a campaign for them.finally won. The activists (Legion Partners, Macellum Advisors and Ancora Advisors) forced a restructuring of the company's board and the replacement of its CEO Steven Temares. New management, including Target veteran Mark Tritton as CEO, was hired in hopes of revitalizing the company.

Tritton "did some things right initially to stabilize the patient," said Seth Basham, an analyst at Wedbush.Retail Immersion, including expanding in-store and curbside pickup for customers who purchased online. The company also benefited from a sales boom during the pandemic. However, the new, broader strategy missed the mark.

Under the new leadership, Bed Bath sought to clear its stores and pursued aprivate label strategy, which means that he began to create and sell his own brands. This approachit was difficult to execute. The retailer faced supply chain bottlenecks and struggled to keep items in stock, and customers weren't exactly falling in love with the new products.

In 2021 and 2022, Bed Bath's ailments worsened. "Their credit profile deteriorated, their liquidity began to wane and over the summer they started paying providers more slowly," said Dennis Cantalupo, chief executive of Pulse Ratings, a retail ratings and advisory firm. "He has damaged relationships with suppliers that have...disrupted some of the flow of inventory. So now the shopper walks into the stores and doesn't see the products they want. And they walk away with nothing."

Bed Bath's retail problems are a money problem: The company has $1.7 billion in long-term debt and needs cash to invest in a turnaround. StillHe has spent a lot of money on share buybacks., which means you're buying back your own shares instead of using that money to invest in the company elsewhere. In November 2021, Bed Bath announced thisacceleratedhis plan to sell $1 billion worth of stock

"It destroyed Bed Bath's cash flow," Shoulberg said. It didn't really raise the stock price, and it didn't do much. “[If] they had that working capital, it's safe to say they wouldn't be in as dire a state of distress as they are right now. They still need to fix up the store, but they would have a little more breathing room."

Cantalupo pointed out that the share buyback problem is not only related to the post-2019 management: the management before the activists had also done a lot of buybacks. To some extent, this is normal behavior in corporate America, and in many corporations.buy back sharesall the time (Whether that's a good thing is debatable.). And Bed Bath has been in good financial shape for a long time. But in hindsight it's 20/20. "They certainly would have had a little more track if they hadn't been so aggressive with their share buybacks," Cantalupo said.

2022 has not been a good year for Bed Bath & Beyond. 2023 could be even uglier.

Last year was a difficult year for Bed Bath.

In June, Tritton was ousted as CEO andreplaced bySue Gove as interim general manager. In August Bed Bathrollsanother restructuring plan that includes closing 150 of its nearly 1,000 stores, cutting costs and implementing layoffs. But these measures appear to be too little, too late.

Bed Bath's holiday season appears to have been an ugly one given the recent earnings release. In a January 10 statement on the findings, Gove said Bed Bath had tried "quickly and effectively" to change its range, merchandising and marketing strategies as part of its recovery plan, but "inventory was limited" and there was no achieved his goal. goals. Bed Bath initiated cost reductions of $80 million to $100 million during the quarter, including overhead and personnel.

"We continue to work with advisers as we consider all strategic alternatives to achieve our short- and long-term goals," he said, adding that "multiple avenues are being explored." The company did not make explicit comments about a possible bankruptcy filing, and in a post-earnings call, Gove limited himself to prepared comments focused on Bed Bath's turnaround efforts.

In an email to Vox, Bed Bath cited the January 5 filing, which read, in part, "Since Bed Bath & Beyond Inc.'s comprehensive turnaround plan began early in the third quarter, which included financial actions on our balance sheet “and improve our cash flow, we have worked with strategic advisers to evaluate all avenues to regain market share and improve liquidity, our stated priorities.” He declined to comment further on the company's woes.

Andseñala Andrew Ross Sorkin del New York Times, Bed Bath really doesn't have many options where to buy cash. It's unclear whether existing lenders are willing to give the company more, and their efforts to redeem some bonuses for new shares have failed.

It should also be noted that repairing fences with suppliers and customers is difficult. "When liquidity dried up, they delayed payments to providers, which hurt some relationships there," Cantalupo said.

In 2022 Bed briefly came to Bathmeme actionsStatus: Which means it's become a darling of online retailers with a collective, often joking, interest in the company. That doesn't seem to have helped in the end either. In March of this year, Ryan Cohen, co-founder of pet e-commerce company Chewy,revealed a big betin the household goods trade. Cohen was acentral figurein game retailer GameStop's intent to turn around and meme stock history in recent years, and there was hope that his involvement with Bed Bath could lead to something good. He urged Bed Bath to "narrow its focus to strengthen operations and maintain the right inventory mix to meet demand" and to consider "strategic alternatives" such as spinning off Buy Buy Baby, the baby chain it owns.

“The problem at Bed Bath is that its scattered and widely publicized strategy is not ending the slump that has been occurring before, during and after the pandemic bottomed out and the appointment of CEO Mark Tritton,” Cohen wrote in a statement. release.Briefto Bed Bath in March. "As evidence, we point to the company's disappointing shareholder returns and continued underperformance across all relevant time horizons."

Cohen's commitment causedBed Bath Stock Quotecoming up short, and the Canadian businessman was able to secure three board seats. But by late summer, Cohenpaid. He pocketed $68 million in the process, but Bed Bath's stock price plummeted.

In September, Bed Bath CFO Gustavo Arnal, whounidothe company in 2020,died by suicide. She faced a lawsuit along with Cohen alleging that the pair were involved in a pump-and-dump scheme around the stock. The company has said the claims areno merit.

"While it's a great story that was on the news, I don't think that's why we're here today. The tragedy that comes with it," Cantalupo said.

Goodbye to the bathroom in bed?

Moving forward, Bed Bath is on shaky ground, and the list of options for what's next isn't particularly extensive. On Jan. 5, Morningstar analyst Jaime Katz said in a note that the company was updating its "fair value estimate" for the "no-moat" company to zero, citing slowing sales and increasing the inventory limit. from suppliers given the uncertainty of cash flow. "Bankruptcy is a much shorter-term risk than we previously thought," he wrote.

If Bed Bath files for bankruptcy, it would give the company a chance to pay off much of its debt, clean up its balance sheet and close underperforming businesses. Will that be enough to save him? It is a difficult question to answer.

"It's a tough fight," Cantalupo said. “There are certainly other alternatives to buying the goods they sell. You have to find a way to differentiate yourself from the competition, which is sometimes easier said than done.”

With the notable exception ofToys R Us, few retailers go completely out of business when faced with a situation like Bed Bath's, Shoulberg said. Many companies are reeling from reviews and bankruptcies, which he thinks will be the case here, though that doesn't mean Bed Bath is clear. "Most of these restructurings don't work," he said. They could get out, but what then? "They still don't have a plan on how to become a successful retailer."

There are a few examples of struggling retailers that have managed to turn their fortunes around. Take the example ofBarnes & Noble, which found a way to survive and thrive in the world of Amazon, and Best Buy, which still exists. In other words, Bed Bath is in a tough spot, but a comeback isn't impossible.

Whatever happens next, Shoulberg said Bed Bath's woes should serve as a warning to other retailers about the dangers of complacency and being left behind. "Not long ago, Bed Bath & Beyond was considered one of the leading retailers in the United States," he said. "They broke up pretty quickly."