With its latest financial funding news this morning, beleaguered Big Box retailer Bed Bath & Beyond is desperately working as hard as it can to answer its suppliers, investors and even customers’ requests to “show me the money.”
The big question remains will it be enough?
The company announced this morning it is doing another debt-for-equity swap, trading about 11.7 million of newly issued shares to some holders of its bonds, the second such conversion it has made in the past week. In doing so, BBB is reducing the amount of money it owes but increasing the number of shares in the company in the market, potentially reducing the value of those shares.
In fact, there’s nothing potential about this. The company’s stock had dropped about 9.5% by mid-morning Monday to a new 52-week low of $3.57 as investors worried about the continued dilution of its share base. The market cap on BBB – the value of all its shares – is now just $314 million. Just a few years ago it was in the billions of dollars.
The trade-off appears to be by design. “We are pleased to announce additional progress towards greater financial flexibility, with further reduction of our long-term debt, particularly our nearest-term 2024 notes,” CEO Sue Gove said in announcing the latest financial news.
By reducing its debt – and further depressing its stock price – Bed Bath seems to be focused on having enough working capital to pay its suppliers. More importantly, it gives it a story to tell those vendors that will reassure them they will get paid for future orders, particularly for goods being bought now for delivery during the first two quarters of 2023.
It’s a calculated risk but BBB’s focus on keeping its suppliers’ confident in the retailer’s future is a smart move. Without those vendors continuing to ship it merchandise Bed Bath would be forced to file bankruptcy for lack of merchandise. That would in fact make the stock price moot.
BBB appears to have secured some much-needed financial breathing space to provide it some time to work out its problems and return to profitability. Of course, there’s no guarantee that will happen but with these moves the past week the retailer is in better shape than it was before to at least try it.
The stock may not reflect that now but the proof will be on the store’s shelves next spring.