Spoiler alert: it’s not going to be pretty
When Bed Bath & Beyond – the Big Box home furnishings retailer that seems to be in perpetual hot water these days – releases its second quarter results at daybreak on Thursday morning, Sept. 29, it will most likely be another cold shower.
The mixed temperature message pretty much sums up the dire position the company is in: it’s losing sales, burning through cash and struggling with how it’s going to get out this mess. This late summer/early fall quarter isn’t going to help.
In late August BBB executives already put out a heads-up that the news would be dismal: they projected a 26% decline in overall sales for the quarter and an additional cash burn of about $325 million, both pretty much consistent with their performance for the first quarter. For the overall fiscal year, BBB said sales would be off about 20%, forecasting the second half of the year would be better than the first half…which isn’t saying much.
With some 150 fewer stores in operation as it starts another round of closings, those numbers would appear to continue to be a self-fulfilling prophecy even if by some merchandising miracle they were able to turn around sales in the remaining stores and online.
Getting rid of bad merchandise and replacing it with the national brands that management believes will make a difference will be a tough task in the short-term. A recent promotional circular still showed a heavy dependence on the company’s house brands, representing almost two-thirds of the goods being promoted. And a visit to the company’s defacto flagship on Sixth Avenue in the Chelsea neighborhood of Manhattan showed little change in the mix of merchandise available for sale. In fact that store seemed to be little changed in any way from its opening days more than a year ago.
Assuming these early projections are in line with the actual numbers the company will report on Thursday, BBB will be faced with a situation that remains dire:
• Cash on hand will be reduced to about $650 million and should the current burn rate continue that will only take it through two more quarters, or the end of its fiscal year next spring. Access to additional credit will be tough in that it’s already believed to have mortgaged its most valuable asset, its BuyBuyBaby unit, in the last fundraising effort. Any future borrowing will be at exorbitant rates, particularly as the Federal Reserve is expected to continue raising the prime rate.
• Vendors consulted during recent visits at fall trade shows and conferences said they were being paid for past shipments but that any future deliveries would be dependent on very stringent payment terms, perhaps as drastic as net-ten-days. Insurance through third-party financing and factoring companies is largely unavailable and when it is it carries high premium rates that vendors said make it difficult for them to make their margins. Should the supplier base lose faith in BBB’s ongoing ability to pay its bills that alone could sink the retailer, as it has in past retail situations.
• BBB has said in the past it plans to roll out a new marketing campaign this fall but so far promotional efforts have been mostly in line with earlier efforts with primary reliance on circulars, online messaging and its ubiquitous coupons. Perhaps the company will offer more details on its plans…but perhaps not.
• And another little piece of the BBB puzzle has apparently been removed. Business of Home reports on Tuesday that Decorist, a small division of the company that focused on custom products for the designer trade had shut down. “In a note on its website, the company told customers they would no longer be accepting new orders or bookings and would be winding down existing projects by October 12,” BOH reported. The online business, bought by BBB in 2017 as one of several acquisitions it made in that period, was retained by new management but apparently is no longer a fit as the company tries to right itself. The pruning continues.
• In the meantime, the company’s stock continues to slowly but surely drop in price with even the meme day-traders staying away. Analyst firms have remained pessimistic and say they don’t see a plausible turnaround scenario anytime soon.
Stay tuned for the latest this Thursday morning. You might want to make your morning coffee especially strong.
Author’s note: the story was updated mid-day on Sept. 27 to reflect news of the closing of the Decorist operation.
WarrensReport 