Is Bed Bath & Beyond At its Tipping Point?

There was good news: additional funds to the tune of $135 million arrived from its white knight investor and an analyst firm upgraded its stock from dismal to a-little-less-than-dismal.

But there was bad news: its stock price is continuing its slow but seemingly irreversible slide, losing more than half its value over just the past 30 days and teetering dangerously close to the level where that investor is no longer…well, an investor.

All of which raises the question: Has Bed Bath & Beyond reached its tipping point?

The Big Box retailer has had more near-death experiences than anyone could have predicted and has defied the bankruptcy gods numerous times with financial engineering that even those in the business have found remarkably original in its structuring. And it’s entirely possible that it will dodge these latest bankruptcy bullets too.

It’s just that its Houdini-like magic act is running out of tricks. Its stock was trading Thursday morning as low as $1.20 a share, which places it at its all-time low since the company went public 40 years ago. Ten years ago it reached its peak at a little more than $77 a share and was worth billions of dollars. Today its book value is barely $150 million.

Its deal with Hudson Bay Capital, the private equity investor, essentially is a stock play that has virtually nothing to do with the retailer’s actual performance: as long as the company’s share price is above a certain level Hudson Bay will buy newly issued shares from BBB at a discount and then flip them to other buyers – presumably meme-stock traders who live in eternal hope — at a higher price and pocket the difference. It’s been reported that the cut-off price is about 72 cents a share but a recent Bloomberg report suggests otherwise.

The news service recently reported, “[The] additional cash has strings attached. Among them: Future injections are contingent on Bed Bath & Beyond maintaining a weighted average stock price of at least $1.25 or $1.50, depending on the timing, according to a regulatory filing. The deal terms allow Hudson Bay to waive those conditions if it wants.”

With the stock now below that threshold, Hudson Bay could pull the plug on this entire arrangement and without those additional cash infusions – projected at about $100 million a month over the next seven or eight months – Bed Bath will not have enough money to stay in business. Bankruptcy will be its only option.

In the meantime, Hudson Bay did send along another check, for $135 million, giving BBB a new fix. And S&P Global Ratings upgraded Bed Bath one notch from D to CCC- on Monday and also raised its rating on senior unsecured debt to C from D. Both are modest improvements…but improvements none the less.

Still the financial ratings firm was not jumping up and down in its appraisal. It continued to give the company a negative outlook citing “substantial debt burden, constrained liquidity, and the challenging prospects of turning around operating performance.” 

BBB in the meantime continues to fight the good fight, closing stores and circling the wagons around a core count of about 360 Bed Bath locations, plus another 120 BuyBuy Baby stores, all in addition to what it says will be an enhanced e-commerce effort. CEO Sue Gove is still saying all the things one should say in these sort of situations. “Over the past month, we have been rebuilding our financial and operational positioning to execute our customer-focused turnaround plans,” read a recent statement.

The dictionary describes the tipping point as “the critical point in a situation, process, or system beyond which a significant and often unstoppable effect or change takes place.” It didn’t include a picture of Bed Bath & Beyond…but it might as well have.

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