Bed Bath & Beyond files for bankruptcy protection
A “Store Closing” banner at a Bed Bath & Beyond store in Farmingdale, New York on Friday, January 6, 2023.
Johnny Milano | Bloomberg | Getty Images
bed bath beyond on Sunday filed for Chapter 11 bankruptcy protection after failing in several recent attempts to raise enough money to keep the company afloat.
The struggling housewares retailer has been warning of a possible bankruptcy since early January, when it issued a “going concern” statement saying it may not have the cash to meet spending after a dismal holiday season. The company’s shares closed at 29 cents on Friday, giving it a market value of $136.9 million. The stock is down about 88% this year. Last April, the stock was trading at around $20.
The company’s 360 eponymous stores and 120 Buybuy Baby locations will remain open for now as the company begins store closures and asset liquidation. But it has filed petitions in the New Jersey Bankruptcy Court to seek permission to auction the two brands, the company said in a press release. It has already committed to closing all of its Harmon FaceValue stores.
Bed Bath had assets of $4.4 billion and debts of $5.2 billion at the end of November, according to court filings. It owes BNY Mellon the most at $1.18 billion, alongside a long list of creditors including providers like Pinterest, Keurig and Blue Yonder, the documents show. It has between 25,001 and 50,000 total creditors and employs about 14,000 off-season workers, court documents said.
“Millions of customers have trusted us at the most important milestones in their lives – from going to college to getting married, settling into a new home and having a baby. Our teams have worked with incredible determination to support and strengthen our beloved Banner Bed Bath & Beyond and buybuy BABY,” CEO Sue Gove said in a statement.
Sixth Street has agreed to lend Bed Bath $240 million in self-owned financing to allow the company to have the cash flow needed to support operations during the bankruptcy proceedings. Bed Bath said it plans to continue paying wages and benefits to employees, maintaining customer programs and honoring commitments to suppliers.
Holly Etlin, a longtime retail turnaround expert and partner and chief executive of consulting group AlixPartners, has been appointed as Bed Bath’s chief financial officer and chief restructuring officer, the filings say.
“Bed Bath and Beyond has finally succumbed to the fact that its business is broke and has filed for bankruptcy,” said Neil Saunders, a retail analyst and consultant who serves as GlobalData’s chief executive officer.
“Though it was a long time coming,” he said, “they just couldn’t defy gravity forever.”
The downward spiral
Bed Bath has been hanging by a thread since January but has refused to go down without a fight. It secured what was then believed to be a Hail Mary stock offering in early February that was expected to raise more than $1 billion in equity into Bed Bath, but the plan fell through, raising just $360 million, the company said.
In late March, Bed Bath announced another stock offering that it hoped would raise $300 million, but that news caused the stock price to fall and the company struggled to raise the funds it was hoping for. As of April 10, the company had sold about 100.1 million shares and raised just $48.5 million.
In filings, the company warned that if it failed to raise expected proceeds from the offering, it would likely have to file for bankruptcy protection.
Days after announcing the second share offering, Bed Bath said it had partnered with bankruptcy trustee Hilco Global to increase its inventory. As part of the agreement, Hilco subsidiary ReStore Capital agreed to purchase up to $120 million worth of goods from the company’s key suppliers after relationships with Bed Bath’s suppliers deteriorated due to liquidity problems.
However, the plans ultimately proved futile.
The retailer is struggling to maintain relationships with its suppliers and is struggling with low inventories, back sales and a rapidly dwindling cash pile.
As the holiday season began, Bed Bath was struggling to keep its shelves stocked and, due to liquidity problems, some vendors began requiring upfront payments, the company said in securities filings.
In late March, the company reported preliminary results for the fiscal fourth quarter with net sales of approximately $1.2 billion and comparable store sales down 40% to 50%. The company found that negative operating losses persisted even though it hadn’t used up its free cash flow.
The company reported revenue of $2.05 billion for the fourth quarter of fiscal 2021.
Change of leadership and failed plans
Bed Bath has enjoyed healthy annual gains for years, but like the giants Amazon came into the picture and began to eat away at the retailer’s market share, its profits began to slide.
For the twelve months ended March 2, 2019, the company posted a net loss of $137 million and has since failed to pull itself out of the red.
In October of the same year, the company tapped Goal Veteran Mark Tritton as CEO. He initiated an aggressive strategy shift that favored private label over national brands to increase retailers’ bottom line. Margins are higher at private label, and a similar strategy had worked at Target under Tritton’s leadership — but the shift in merchandise didn’t resonate with customers.
In addition, with the focus on private label, many areas of manufacturing and logistics fell under Bed Bath’s responsibilities, which became increasingly difficult when the Covid-19 pandemic hit early the following year.
“If there’s a single flaw with Bed Bath and Beyond, it’s that the company is no longer relevant to consumers. This arguably goes way back, thanks to the rise of the internet and improving home offerings at rivals like Target. With this increasing competition, Bed Bath and Beyond’s retail approach – which lacked inspiration – was found wanting,” said Saunders.
Saunders called Tritton’s turnaround efforts “poorly executed and not in line with what buyers wanted.”
Last June, Bed Bath announced they would replace Tritton with Gove. She then launched her own ambitious turnaround plan that she hoped could save the company. However, it struggled to restore the company’s relationship with key vendors, and efforts to turn the tide have coincided with high inflation affecting consumer spending, while rising interest rates weighed on the real estate market.
Additionally, consumers who spent 2020 and 2021 staying home and modernizing their homes amid the pandemic are now spending on travel, dining out and other out-of-home experiences.
The company has seen further upheaval in the past year, including a brief summertime investment by activist investor Ryan Cohen and the suicide of Bed Bath’s chief financial officer, Gustavo Arnal, in September. In mid-January, the company was looking for a buyer willing to inject cash to keep it afloat. Soon, however, Bed Bath revealed in a securities filing that it did not have enough cash to pay its debt and its line of credit with JPMorgan had defaulted.
The company was able to make its interest payments with funds raised from the initial share offering, but at the time it warned it would “probably” have to file for bankruptcy and have its assets liquidated if the deal didn’t go as planned.
The company had loans with it JP Morgan and Sixth Street, which were reduced in late March following the announcement of the second share offering. At that time, the total revolving commitment was reduced from $565 million to $300 million and the revolving credit facility was reduced from $225 million to $175 million. Under the reduced loan agreements, Bed Bath was on the hook for monthly interest payments.
The company said it is trying to cut costs by reducing capital expenditures, closing stores and negotiating leases, but warned in its filings that the efforts “may not be successful.”
At a popular Bed Bath outpost in New York City, a now-fired employee recently told CNBC that workers stood around, not knowing what to do after the company suddenly stopped in-store pickup and delivery at the site.
The worker was told bankruptcy trustees were coming the next day, and soon learned that after more than two decades with the company, he would not receive severance pay.
“It just happened so quickly,” said the worker.