Bed Bath & Beyond Inc. (NASDAQ: BBBY) struck a deal to stave off bankruptcy. It was not enough to buy time to reverse its flagging sales, if time is a cure. Its shelves have been bare too long, and its store footprint has dropped too much for the money to be helpful. Even in liquidation, it is not clear whether investors will be made whole.
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The financing totals $1.025 billion. Taken together with other agreements, it is complex. At the outset, Bed Bath & Beyond will get $225 million. According to the Financial Times, it will get another $100 million from Sixth Street Partners. Beyond that, the paper reports the final $800 million comes from “Bed Bath & Beyond securities that require investors to purchase convertible preferred stock in future installments assuming certain conditions are met.” The “certain conditions” section should be cause for concern.
The company’s deal cooled off common shareholders. After a one-day increase of 90% to $5.86, the stock dropped 32% on the news.
The company cannot combat the fact that people have left its store in tremendous numbers. Last quarter, comparable store sales dropped 32%. This pushed revenue down 33% to $1.26 billion. The company lost $391 million. (Click here for the 21 companies that make the most profit per second.)
The company recently announced it would close 87 stores. This was on top of the 150 it said it would close last year. Its store count has gone from over 1,000 to about 750 in two years. Customers who have been used to shopping in the locations that have disappeared are unlikely to travel to another unless it is close by, which is unlikely given the shrinking store footprint.
Another hurdle Bed Bath & Beyond has is that many of its shelves were bare over the holidays. Inventory problems, triggered by an inability to pay vendors, meant customers who traveled to stores might have been disappointed. Most of these people will not return.
Bed Bath & Beyond does not have a primary financial problem. Its problem is that it lacks enough customers to survive.
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