Let’s do the math: You buy back your stock over a several year period at a cost of billions of dollars. Then you issue new stock earning millions of dollars.
Even those arithmetic-challenged know it just doesn’t add up.
Today’s announcement that Bed Bath & Beyond was essentially doing a debt-for-equity swap continued its efforts to raise cash and reduce the amount of money it owes to assorted lenders. Over the past several weeks it has done a stock offering under what’s called an “at-the-market” program that it hoped would raise about $150 million in new funding. Today’s news creates an additional 2.8 million shares, converting some of its outstanding loans into equity.
Sue Gove, the embattled Big Box retailer’s CEO, said all of this activity continues “to demonstrate progress towards securing a stronger financial position” and indeed it does, at least for the short-term. With a burn rate of as much as $350 million every three months, Bed Bath needs a lot of money in its checking account to tide it over until it is able to stabilize itself…assuming it does.
But what’s left unsaid – at least by Gove and her executives — is that this frantic activity is necessary only because over the past few years, under at least two different managements, the company has bought back billions of dollars of it shares, in the process eating up the working capital it so desperately needs right now.
From an initial target of $675 million in stock buybacks announced by former CEO Mark Tritton in 2020, it ended up buying back $1 billion in shares by November of last year, ahead of its original schedule and eating up a huge chunk of its bank account.
This followed earlier stock buybacks under Tritton’s predecessors that also ran into a similar range, albeit when the retailer was in generally better shape.
We’ll never know what motivated Tritton’s accelerated schedule although some can speculate it was at least partially designed to reward the activist investors whose actions eventually resulted in his getting his job. Such motivations are not unusual when it comes to these sorts of situations. There’s no doubt that stock buybacks are a legitimate way to boost a company’s share price when done at the right time and at the right amount. Bed Bath’s actions may not have met either criteria.
Whatever the reasons, BBB essentially spent more than a billion dollars over an 18-month period creating a situation where it needed to sell new shares resulting in millions of dollars of income.
Bed Bath & Beyond has made many mistakes over the past several years under a number of administrations and while it may skirt through its current misery its self-inflicted wounds cannot be discounted…even with one of its ubiquitous coupons.