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Bed Bath & Beyond could file for bankruptcy 'as early as this weekend': Macco CEO

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Bed Bath & Beyond (BBBY) had a brutal 2022.

With debts and losses piling up, the homewares retail chain warned on Thursday that bankruptcy was looming. And according to an industry expert, the end could be much sooner than expected.

“I think it’s inevitable that they will shelve,” Macco CEO Drew McManigle told Yahoo Finance Live (video above). “I wouldn’t be surprised to see them file as early as this weekend. There’s no reason not to… I wouldn’t be surprised if the Chapter 11 petitions haven’t been drafted yet and are just waiting for a signature.”

Bed Bath & Beyond’s sales have been in dire shape since 2018. The company is currently at a loss of $385 million. Investor sentiment towards the stock is also pretty bleak – following news of the likely bankruptcy, the stock plummeted 29% to close at $1.69 on Thursday.

“Much like an emergency room, if the patient dies, what difference does it make?” said McManigle. “So the premise of a turnaround is to save the company so it has another fight another day. I don’t think Bed, Bath & Beyond will do it.”

Recovery efforts in vain

Despite the recovery efforts made by Bed Bath & Beyond, McManigle isn’t convinced it will make much of a difference.

“I suspect they are working on their debtor in possession financing,” he said. “I think it’s a fait accompli that they’re shelving… It was brave that they tried to enact a recovery plan, but they were late and it wasn’t deep enough or far enough.”

The twists to increase sales were first implemented by CEO Mark Tritton in 2021. The turnaround under Tritton meant remodeling with “physical and digital fusion” and post-pandemic recovery with some store closures.

Soon, Bed Bath & Beyond simply ran out of money. The debt as of March was nearly $3 billion, some of which the company paid off through its shares. At the end of June 2022, the operating loss was $224 million and Tritton was replaced by current CEO Sue Gove.

“Cash is the lifeblood of these businesses,” McManigle said. “If you run out of money, you’re out of business. And that’s one of the things that hurt Bed Bath & Beyond.”

The company previously secured $500 million in funding in August 2022 and used the lifeline to close about 150 underperforming stores (about 20%) across the country.

According to McManigle, though, that number “simply isn’t enough”.

“We would have gone in and looked at every store,” he said. “And if you were losing money and if the sales weren’t relevant, we would have closed. In the turnarounds, you’re going to break some eggs, including the share price.”

A person shops at a Bed Bath & Beyond store in Manhattan, New York, USA, June 29, 2022. REUTERS/Andrew Kelly

A person shops at a Bed Bath & Beyond store in Manhattan, New York, USA, June 29, 2022. REUTERS/Andrew Kelly

What does bankruptcy mean

Bed Bath & Beyond relies heavily on its suppliers. Once the company declares bankruptcy, vendors will not be able to file lawsuits against the company to ask for their checks.

“Consequently, [vendors] tighten their credit terms, which means Bed, Bath & Beyond can’t fill their stores with inventory for sale,” McManigle explained. “So the bankruptcy process allows you to stay in business within a process that gives creditors and others some comfort there will be a debtor in possession. It will be a bit like usual as you try to change your business plan.”

Meanwhile, brand value must be assessed. A company would need to increase its brand equity to make the entire business ready for purchase.

In McManigle’s eyes, Buy Buy Baby and the company’s Harmon pharmacy chain have some market value. In the case of Chapter 11 bankruptcies, companies typically want to maximize this amount to find someone who wants to buy the business, in part or in full.

As of January 5, Bed Bath & Beyond’s market value was $198 million.

Tanya is a data reporter for Yahoo Finance. Follow her on Twitter @tanyakaushal00.

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