Bed Bath & Beyond Struggles to Find Footing

The retailer got a last minute lifeline from Hudson Bay Capital, but the future of Bed Bath & Beyond remains challenging.

Bed Bath & Beyond, a favorite among meme-stock traders, got a last minute reprieve as a hedge fund stepped up this week to provide liquidity, but the retailer's finances remain strained.

While filing for bankruptcy is not in its immediate plans any longer, the household goods company's warning was only made in January.

One analyst, Wedbush analyst Seth Basham, believes that the retailer faces major headwinds and that bankruptcy still remains a possibility. 

Bed Bath & Beyond received an infusion of capital from Hudson Bay Capital on Feb. 7. The hedge fund agreed to invest $1 billion in the retailer in the form of convertible preferred stock and warrants. The retailer is attempting to stop the hemorrhaging of cash as vendors seek money from receivables that are past due.

Is a Turnaround Possible?

Reviving Bed Bath & Beyond appears to be a gargantuan task as shoppers are often fickle, especially as the economy is slowing down and consumers are cutting back on buying items that are not a necessity.

The retailer has been shuttering stores in locations that had little foot traffic and declining sales and plans to close a total of 400 stores, Bed Bath & Beyond said.

If you haven't set foot in a Bed Bath & Beyond for several years, you are probably not alone.

After visiting two locations this week in Houston and a nearby suburb, there is no mystery why the stores are failing to attract shoppers.

While the stores are well lit and items are organized with easy to see signage, Bed Bath & Beyond seems to be missing a niche that sets it apart from its competitors.

The store appears to skew toward higher end products with robot vacuums and combo air fryers and toaster ovens prominently displayed. Selling kitchen appliances such as a $579.99 Vitamix blender could be out of the reach of many shoppers' budgets.

Bed Bath & Beyond does sell some cheaper items that could grab the attention of younger shoppers who would find a $10 nonstick aluminum pan a better fit. While the store offers cheaper kitchenware, the variety is lacking. One store appeared to have carried only one brand of pans.

The stores are fairly large and carry everything from drugstore items such as razors to blow dryers to curtains and Tempur-Pedic pillows that are over $100.

The amount of items sold can be a bit overwhelming. Shoppers can buy everything from a shower caddy to platters and martini glasses.

Some of the brands sold are well-known, including Oxo kitchen utensils, Sharper Image compression wraps, iRobot vacuums, KitchenAid mixers, Calphalon pots and pans and Riedel wine glasses that cost $68.99 for a pair.

Shopping in the store can be confusing. On on hand, you can buy $10 twin sheets, but in the next aisle the store sells $150 625 thread count king-sized sheets.

Bed Bath & Beyond clearly needs an identity - it needs to decide if it wants to be a discount store or one that caters to shoppers seeking higher end products.

Discounts were few and far in between. There was still a section selling leftover Christmas decorations while another one was already selling items for the Easter holiday.

In some sections, such as kitchen accessories, the shelves were often quite bare. It's likely those products were the ones sold by vendors that are still owed money.

Tech products for the home such as Google's Nest were only on display, but none were available to buy.

The ratio of the number of customers to employees was impressive. Sometimes the ratio was 1:1 while other times there were only two customers to one employee.

One employee said on Tuesday afternoon that he earned $12 an hour and was looking for a new job due to fears of the store being shut down, stating “I have to.”

During a span of 50 minutes, there were less than 10 customers and only a handful of people made purchases. The checkout lines were closed and customers were directed to the area where returns could be made.

Despite this store being located within walking distance of an AMC theater, very few people make purchases, the employee said.

Consumers could be waiting for deals, especially on higher-priced appliances and tech gadgets.

Future Looks Bleak

Whether the capital infusion of $225 million now and a maximum $800 million over a period of several years from Hudson Bay Capital and other investors will save the storied brand is anyone's guess although many equity analysts remain highly skeptical.

Wedbush's Basham said the last minute funding may not be sufficient to keep existing shareholders happy because the new deal dilutes their current holdings.

He raised the price target of Bed Bath & Beyond only slightly - from zero to just $0.25, warning that bankruptcy could still be a possibility if the remaining $800 million in capital does not come through.

"However, this lifeline comes at an incredible cost to existing shareholders who could see over 80% dilution from convertible preferred shares and warrants if fully executed,” he wrote in a research note.

“As we see a low probability that the company achieves its 2023 turnaround plan, we ascribe little-to-no value to the company’s equity on a probability-weighted basis," Basham said. "Failure to secure the additional $800 [million] and/or an unsuccessful turnaround in 2023 could put the company back on bankruptcy’s doorstep.”

Shares of the company have slumped by 83.85% during the past year and it's a fool's errand to guess if shareholders will punish the company even further.

The company had already warned in January that it was close to filing for bankruptcy as sales had slumped even over the holidays, which is usually the busiest time for many retailers.

Before the bailout by the hedge fund, Bed Bath & Beyond was in dire straits and was falling behind on payments to nearly everyone. It had missed making payments to its bondholders and banks were unwilling to provide loans or give the company additional credit lines.

Fed-up vendors stopped shipping items until the company could pay for its previous merchandise which put the company in a Catch 22 situation where some items could not be sold to customers, but sales continued to dwindle.

Big Blue Coupon Still Exists

Bed Bath & Beyond is still a household name, once known for its ubiquitous coupons called Big Blue that were mailed to American consumers by the millions to buy sheets, rugs and other household items.

Consumers stashed the coupons, outlined in the retailer's trademark blue color in their cars, purses, bags and even junk drawers so they could snag a 20% discount some day. Management lured in shoppers with the coupons which arrived frequently, often before people could use them to buy a set of Moscow mule mugs or a housewarming gift.

The coupons are still around and consumers can sign up to have them delivered by mail or via text.

But even the coupons are not enough to attract its once loyal shoppers who sought to buy the latest trendy gadgets or kitchen utensils.

In recent years, the retailer has stagnated in shopping centers as competitors like Target ramped up their offerings of inexpensive bedding, pillows and cheap glassware, making it easy for shoppers who had originally planned to buy shampoo and laundry detergent to add a few extra items to their carts.

As shopping online became more common, Bed Bath & Beyond was often abandoned by customers. The ones who did shop there complained about the lack of inventory while others sought answers to questions about stemware or vacuums only to be left without any help from employees.

The company's debt increased over the years to the point that it began defaulting on making its interest payments. Changing CEOs also did not appear to help - last October the company hired Sue Gove to run the ailing company after Mark Tritton stepped down.