Has Bed Bath & Beyond Reached Its Tipping Point?

Bed Bath & Beyond is now caught up in a push/pull quandary that could very well determine the future – and the outright survival – of the troubled Big Box home furnishings retailer.

On the one hand are those who believe the chain has hit rock bottom and it has nowhere to go but up. This group now includes investor Freeman Capital which took a 6% stake in BBB this week on the strength of its belief that it will be able to raise $1 billion in debt financing to see it through these very dark days. There are also senior executives who purchased a number of shares within the past week trying to show support for the company.

On the other side are those who think this is a ship that is going down regardless of any attempts to bring out the lifeboats. The newest member of this group is Bank of America which put out a report on Friday saying that new financing wouldn’t be possible given the company’s current debt load and severe underperformance over the past few quarters. It joined Moody’s which recently downgraded Bed Bath’s senior unsecured notes rating to Caa3, according to online analyst newsletter Seeking Alpha.

This push/pull standoff – they used to call it stasis in high school biology – is most reflected in the company’s stock price ever since it reported disastrous results a few weeks ago that were accompanied by the departure of its CEO and chief merchant. Prior to that, shares had been trading in the low to mid-teens but they have hovered back and forth on both sides of $5 since. A Wall Street Journal online video posted on July 16^th certainly didn’t help (and shame on the Journal for not knowing how to pronounce departed CEO Mark Tritton’s last name).

That the WSJ used the “B” word – bankruptcy – had to send shivers up and down the retailer’s suppliers who may ultimately decide the fate of the company. In some previous retail bankruptcies, spooked vendors who stopped shipping starved stores of goods, creating a self-fulfilling bankruptcy prophecy.

Vendors spoken to recently – very deeply off-the-record due to the fact that they continue to do business with Bed Bath and aren’t ready to pull the plug yet – said they are keeping the retailer on a very short leash for new orders even if they can obtain credit insurance, which seems to still be available, albeit at higher-than-usual premiums.

One vendor said he is sitting on millions of dollars of inventory of private label goods for Bed Bath but has gotten no indication if and when the retailer will start accepting incoming deliveries again. Like virtually every supplier contacted – large and small – they said they have not heard from upper management on future plans, creating more uncertainty (not to mention ill-will) on what’s next.

Another vendor shared an email string that showed the vendor asking for payment on a past due invoice in which Bed Bath’s finance department said it could not provide a date as to when it would be paid, saying that it was trying to bring its accounts payable up to date. The amount in question was not large by any stretch of the imagination for a retail customer with 800 stores.

How long can BBB continue to tread water? Having just reported its quarter, it has at least another two months to try to clean up both its balance sheet and its inventories before it has to report again. It has sufficient credit to go at least two more quarters at its current rate of loss before it needs to borrow any more money. And its first debt payment on existing loans is not for almost two years. So, that’s breathing space…but not exactly an endless supply.

Some vendors suggested observers should watch to see what the company does with its BuyBuyBaby division, which has been suggested could be sold to raise cash. If BBB holds on to it, it could signal that it believes it can get through this without losing that asset in a potential chapter 11 filing. However if it does unload it that could mean it will seek bankruptcy with this extra cash on its books.

In the meantime BBB is starting to roll out serious promotional efforts while it searches for a new CEO and chief merchant, both roles being currently filled on an interim basis. There’s no timetable when these roles might be filled on a more permanent basis.

But for right now life on the edge has to be taking its toll…on management, on employees, on suppliers and, ultimately, on Bed Bath & Beyond’s customers.