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Shares of U.S.-based retailer Bed Bath & Beyond (NASDAQ: BBBY) are down 80% in the last 12 months as Wall Street remains concerned over the company’s chances of survival. Similar to Costco (NASDAQ: COST) and Walmart (NYSE: WMT), Bed Bath & Beyond is a big-box retailer.
BBBY is currently wrestling with an over-levered balance sheet, weak financials, and poor fundamentals. In recent years, it has failed to expand its presence in the digital space, renovate its stores or refresh its product portfolio.
In a filing with the SEC last month, Bed Bath & Beyond warned shareholders and its creditors that it might file for bankruptcy protection as it is running out of funds to repay its debt.
Is BBBY stock a buy or sell right now?
Bed Bath & Beyond has struggled to grow its sales since fiscal 2017 (which ended in February). It was also the last year since the company reported a net profit. In fiscal 2017, BBBY generated sales of $2.3 billion and a net income of $425 million.
In fiscal 2022, its sales stood at $7.9 billion, while net losses were $560 million. Moreover, in fiscal 2023, Wall Street expects sales to fall by another 30% to $5.5 billion, with net losses widening to $1.3 billion.
BBBY ended the November quarter with just $153 million in cash, down 70% compared to the prior-year period. In this period, its long-term debt grew 64% to $1.94 billion. The debt is primarily in the form of unsecured senior notes that mature in 2024, 2034, and 2044. The coupon payments are semi-annually due on the first of February and August each year.
The company’s interest payments in February amounted to $28 million. It also owes $550 million to JP Morgan Chase (NYSE: JPM), which is an asset-backed loan, and another $375 million to Sixth Street, after it expanded credit facilities in August 2022.
What next for Bed Bath and Beyond for investors?
Bed Bath & Beyond filed a prospectus with the SEC recently and disclosed its intention to begin a stock offering and raise capital. A report from the Motley Fool states, “Bed Bath & Beyond will offer preferred stock and warrants to purchase additional preferred and common stock in sufficient quantities to raise $225 million in cash immediately.”
It emphasized, “The company expects as much as $800 million in additional proceeds that would result from rights it has to force holders of its warrants to exercise them.”
In case the offering fails, Bed Bath and Beyond has claimed it will file for bankruptcy protection and liquidate its assets.
Another option for Bed Bath & Beyond is an offer for acquisition or a buyout. Valued at a market cap of $211 million, the company has close to $4 billion of debt on its balance sheet. Given its less-than-impressive financials, Bed Bath & Beyond is unlikely to attract any buyers.
Lastly, BBBY might look to sell Buy Buy Baby, which is its infant-oriented business segment. This vertical might be worth around $400 million, injecting the much-required liquidity into Bed Bath & Beyond.
Even if it raises capital, BBBY will have to lay off employees, close multiple stores, and lower its cost base. It will be extremely difficult for Bed Bath & Beyond to survive until the end of 2023, considering it is struggling with significant headwinds.