Bed Bath & Beyond and Party City are not direct competitors even if they have some overlapping product areas. But the chapter 11 filing of Party City today could be a very good indicator of what might happen if BBB is forced to take the same route and go into bankruptcy.
And the comparison is not especially good news for Bed Bath.
Party City’s filing on Wednesday morning was long speculated, much as BBB’s is right now. The two retailers have many things in common. Each has struggled with addressing changing consumer shopping habits, dealing with supply chain issues and having too much debt relative to sales. Their debt levels are similar, give or take a couple of hundred million. Each has about 800 stores, BBB a little more, Party City a little less, even if Bed Bath’s annual revenues are more than double. Both companies are even based in the same state, New Jersey.
So while it’s not a direct apples-to-apples/balloons-to-blenders comparison, how the Party City bankruptcy is being handled may tell us a lot about a potential BBB filing.
Party City has received $150 million in debtor-in-possession financing, money fronted by one of its current lenders to help it pay for day-to-day expenses while in bankruptcy, including the actual cost of the legal proceedings. That’s not a huge amount of money as DIP financing goes but given its rate of sales it should be workable.
BBB, on the hand, with an operation significantly higher and a cash burn rate of more than $350 million for each of the past three quarters, would need significantly more working capital. As Party City is the first big retailer to file since interest rates began to climb and lending became tougher it could signal that lenders are going to be more frugal on DIP funding. That’s bad for Bed Bath.
Party City has also had more success than BBB in some of its debt swaps, an effort Bed Bath had to put an end to after lackluster interest from investors. Party City has also closed only 28 stores prior to filing when getting out of leases is easier and less costly. Still those limited closings cost it $174 million while BBB is in the process of closing hundreds of stores at a cost yet to be publicly announced.
Finally, as steady a slide as Party City has had during the pandemic years it is still not much compared to BBB’s several rounds of management changes, strategic revamps and dismal sales even as overall spending of home furnishings products boomed during the stay-at-home years of 2020 and 2021.
Speculation continues to run rampant on when Bed Bath & Beyond will file for bankruptcy. None of it is on if it will. So if the Party City news is a harbinger of what to expect when it does, BBB’s current problems may only just be starting.
WarrensReport 