We all know the feeling: we can’t quite pay our bills so we borrow money, knowing it’s going to be a risky move given our financial situation.
That appears to be what’s happening at Bed Bath & Beyond according to a Bloomberg report this week that the company is looking into private loans to help out its tenuous balance sheet and provide it more working capital to pay its bills.
The Big Box retailer, which recorded a devastating loss last quarter that resulted in the departure of both its CEO and chief merchant, isn’t confirming the report but if it’s true the new loans will supply both a short-term lifeline and a potentially longer term drag on its cash flow.
Bloomberg, citing “people with knowledge of the talks who asked not to be named because the talks are private,” said BBB had “consulted with direct lenders about a potential new asset-based credit line.” It added that according to those sources, “the retailer’s talks with private credit providers are preliminary and it is still weighing other options.”
Bed Bath declined to comment about the report to Bloomberg and has not responded to previous inquiries from Warrensreport.com. It has said it plans to provide more details on its plans at the end of the month. On its June call with analysts, chief financial officer Gustavo Arnal said the company was looking into ways “to even increase further our liquidity and navigate through the working capital cycle, particularly in the next two quarters.”
Bed Bath says it has about $100 million in cash on its books right now – down from a billion a year ago – and has about $700 million it can still tap on its revolving credit line. But with a $225 million adjusted loss this past quarter it could burn through those available funds relatively quickly.
The move, if it happens, would be consistent with what Freeman Capital, an investor firm that announced a 6.1% stake in Bed Bath last month, said it was recommending. It said additional fund raising – as much as $1 billion – could be necessary to keep the retailer afloat.
Of primary concern in the short-term is having enough cash to pay the company’s vendors who are naturally concerned about extending credit. Several have said off-the-record that they are holding back shipments until they are paid for existing orders. Such actions have been deadly in the past for retailers struggling to pay their bills, ultimately dragging them into bankruptcy.
Right now, BBB has significant inventory on hand based on its slowing sales but industry observers have said the merchandise is not optimal, largely the store’s own branded goods which have proven to be slow sellers. Bed Bath management has said it is planning on bringing back more nationally branded goods but how fast that can happen given its cash flow is questionable.
In the meantime, Bed Bath’s stock is up by more than a fifth from the low it hit in late June when it announced the disastrous quarterly results. Trading in the stock has been much heavier than usual, perhaps reflecting speculators willing to take a flyer on a share price they believe may have bottomed out. But with bankruptcy rumors swirling around, the fate of what was once one of the best retailers in America remains very much uncertain. Stay tuned to the end of the month’s company update.