Through good times and bad, Bed Bath & Beyond has always had one very important advantage over other retailing corporations: Its balance sheet. Over its nearly four-decade run as a public company the Big Box retailer has had little if any debt for a company its size and often even reported interest income on its cash on hand.
All of that is ending suddenly – abruptly – and it balance sheet is now the single biggest threat to the ongoing survival of a retailer that is struggling through a significant downturn and is currently being run by its fourth president (interim or otherwise) in as many years.
The Wall Street Journal, in an analysis of the company’s cash position, said BBB ran through $332 million during its first quarter ended on May 28, leaving it with just $108 million in readily available funds. It also drew down $200 million of its $900 million credit revolver, which it noted is asset based. A year ago, the Journal said, BBB had $1 billion in cash reserves.
It’s a remarkable financial meltdown for the company and comes even as it sold a number of assets under former CEO Mark Tritton, including its Christmas Tree Shops and Cost Plus World Market banners as well as the real estate for its Union, NJ headquarters and other properties.
While some of that money went to investments in infrastructure and product development, $1 billion of company proceeds were spent on stock buybacks. That was originally projected to be a three-year process but the company got it done in two years and then added on another $600 million in buybacks during the last fiscal year, which ended this past winter. It even spent another $43 million on buying back stock during this last deeply troubled quarter, the Journal reported.
The stock buybacks combined with the spending on new programs and processes combined with ongoing declines in revenue, including a whopping 25% decline this spring.
It’s a deadly combination even if BBB finance chief Gustavo Arnal told analysts last week that it had sufficient liquidity, even noting it had brought on a consultant to help it with its money management. (The fact that the firm in question, Berkeley Research Group, had previously worked with a number of other retailers including Modells, Shopko and Gymboree all of which filed for bankruptcy and/or went out of business, needs to be noted.)
It’s not a pretty picture and it is starting to look like the trap that so many other retailers have fallen into, burning through their cash and borrowing against assets to stay afloat. The recent spike in interest rates – expected to only get worse – could make things worse.
Relief in the form of excess inventory liquidations, new potentially more saleable merchandise arriving in stores hopefully in time for the holidays and a shutdown of spending on store remodels, infrastructure improvements and – most critically – stock buybacks could all be helpful. There’s also the potential for the sale of the company’s BuybuyBaby brand, which one analyst said could produce $800 million.
But whether any of this will arrive in time to make a difference before expanding debt levels consume the company is the big question. Vendors who might be looking for faster payment terms in light of reports that factors have stopped financing deals with Bed Bath can’t help either.
A number of analyst’s reports have come out in the past few days essentially saying they don’t believe BBB can pull off a recovery. With its first major debt load due in August of 2024, they don’t think the retailer can generate that kind of cash – about $285 million – to pay off its loan. Refinancing at higher rates will only make the situation worse, they contend.
The troubles at Bed Bath & Beyond have been building for years, long before Tritton and the new board stepped in to try to fix it. To think anybody – even a white knight savior – can come in and save the day anytime soon is just unrealistic. That said, retailers have a history of hanging on, after decades of disarray and even after filing for bankruptcy. The examples are just too numerous to mention, you won’t have any trouble coming up with some names.
But the fact that we’re talking about Bed Bath & Beyond and bankruptcy in the same paragraph says a lot.