What awaits us after the bankruptcy warning

A pedestrian walks past a Bed Bath and Beyond store in San Francisco, California.

Justin Sullivan | Getty Images

When Bed bath and beyond executives address investors Tuesday morning, they won’t just report sales and earnings results. They will have to face a harsh reality: the cash-strapped household goods retailer is running out of time.

On Thursday, Bed Bath warned it may have to file for bankruptcy, saying it may soon be unable to cover costs due to delayed sales and reduced store traffic. He also said he was struggling to keep items in stock as he ran out of cash and struggled to mend strained relationships with suppliers.

The national chain, known for its 20% coupons and dizzying piles of towels and household items, is increasingly likely to join the list of retailers that have closed stores and disappeared. Think about it, Sears. Circuit City. RadioShack. Pier 1. Sheets and things.

Moreover, the attempted turnaround comes just as inflation is weighing on consumers’ wallets and the housing market is being hit by higher interest rates. Also, after spending the early years of the Covid pandemic at home, more and more people are choosing to spend money on dining out or booking trips rather than buying cooking utensils, a duvet or pillows.

“When you have a change in the way consumers allocate their spending and a recession is potentially looming on the horizon, that makes the battle much harder,” said Justin Kleber, senior research analyst at Baird Equity Research. .

The company’s stock performance also reflects its rocky path. Shares of the company hit a 52-week low on Friday. As of Monday morning, they were trading around $1.74 for a market value of less than $151 million.

In pursuit of a comeback

Bed Bath presented its latest turnaround strategy in August. The plan included drastic cost reductions along the lines of closing around 150 of its namesake stores and downsizing by around 20% across its corporate and chain workforce. supply.

These efforts have reduced its operating costs, as it attempts to increase sales: for the third quarter, Bed Bath expects operating expenses to be approximately $583.6 million, up from about $698 million a year ago, he said Thursday.

The company’s turnaround strategy also involved phasing out some of its house brands and returning more recognized national brands. It pledged in August to work with these national brands to develop exclusive items and add direct-to-consumer branded items – merchandise aimed at standing out and giving shoppers a reason to return to its stores.

Next Tuesday, investors will want to know whether the company has improved inventory levels, whether they’ve been successful in securing any exclusive items for the holiday season, and how willing sellers have been to work with the retailer. If Bed Bath has made significant progress in improving inventory, this could offer a glimmer of hope for the quarters to come.

“Being the first to bring new brands and products to our customers has always been one of our roles as a retailer,” Executive Vice President Mara Sirhal told investors during a business update. of August 31. “In the domestic market, there are many D2C brands that bring their own compelling brand marketing and followers who know and want them but are not widely available to purchase.”

Emerging Direct-to-Consumer Brands have an incentive to partner with brick and mortar stores like Bed Bath and Targetas they provide a means to reach more customers and respite from slowing e-commerce, high marketing costs and shifts in consumer habits that have reduced profitability since the pandemic began to wane.

But brands and suppliers have been reluctant to extend credit to Bed Bath as its mounting debt casts doubt on its ability to pay bills.

And overall sales trends remained weak.

The company said Thursday it expects net sales for the third quarter, which ended Nov. 26, of about $1.26 billion, down nearly 33% from 1.88 billion announced for the prior year period. Bed Bath forecast a net loss of about $385.8 million for the quarter, an increase of about 40% from year-over-year losses. These quarterly losses include an impairment charge of approximately $100 million, which was not specified.

CEO Sue Gove urged patience on Thursday, saying the turnaround will take time. She took the helm after former CEO Mark Tritton was forced out in June.

“Transforming an organization of our size and scale takes time, and we expect each quarter to come will build on our progress,” she said in a press release.

Baird’s Kleber said investors will want to know if there’s been a shift in sales trends over the Christmas season — key weeks that would be reflected in fourth-quarter results, but could be anticipated earlier.

‘Kiss of death’?

Before Bed Bath can tackle moving products off the shelves, it needs to tackle an even more fundamental problem: having enough merchandise to fill them.

Gove said low inventory levels were partly responsible for the company’s anticipated losses in the third quarter.

The company is using the dollars it earned over the holiday season to swell shelves with the help of its major suppliers, Gove said. As inventory levels have improved, sales trends have also improved, she said.

But it is not clear if this will be enough.

“At the end of the day, all the yabba dabba doo about their new strategy that they’ve been touting for the past six months. It’s just a lot of talk,” said Mark Cohen, professor and director of studies on the retail business at Colombia School of Business.

Cohen said he views the going concern warning as the “kiss of death” for Bed Bath, cementing bankruptcy as the retailer’s only remaining option – beyond a savior rushing in with a brew money or to buy a stake in the company.

“Without a defining event like this, this business is toast,” said Cohen, the former CEO of Sears Canada.

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