Bed Bath & Beyond Inc.’s move to issue preferred stock is a “last gasp” effort to survive before filing for bankruptcy, according to Wedbush analyst Seth Basham, who warns that the equity would eventually be wiped out.
“We see these capital-raising transactions as a ‘last gasp’ to survive
before filing for bankruptcy protection where the common equity would likely be worthless,” he wrote in a note released Tuesday.
Bed Bath & Beyond’s
BBBY,
stock plunged 48.6% Tuesday, pulling back from strong gains Monday that saw shares of the troubled retailer gain 92% in a move that swept up other meme stocks.
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The moves proposed by Bed Bath & Beyond aim to generate additional liquidity, satisfy the company’s defaulted loans and missed interest payments, and, most importantly, buy it more time, according to Basham.
Wedbush slashed its price target on the stock to zero from $1 .
Bed Bath & Beyond said after the bell Tuesday it has closed the sale of convertible preferred stock as well as warrants to purchase common shares and convertible preferred stock. The company raised about $225 million in the sale, as expected, and is expecting to receive an additional $800 million in future installments, assuming certain conditions are met.
The company has said it may have to file for bankruptcy and recently disclosed it was in default on loans that were called in.
In a Tuesday statement, the company said it will use the proceeds from the deal to repay outstanding debt and expects to reborrow loans under an amended credit facility to fund strategic initiatives in fiscal 2023, which include plans for a new store footprint and cost structure.
The company is targeting having a network of just 360 stores and about 120 Buy Buy Baby stores across the U.S. and expects digital sales to account for more of its overall sales.
In early January, the picture looked far different with plans to close 130 stores out of a total of 949 stores, divided between 62 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada; 137 Buy Buy Baby stores; and 50 stores under the names Harmon, Harmon Face Values and Face Values.
“We are optimizing our store fleet and supply chain and continuing to invest in our omni-always capabilities,” Chief Executive Sue Gove said in a statement. “This will enable us to better serve our customers, and grow profitably, by directing merchandise where and how they want to shop with us.”
Wedbush analysts led by Basham were underwhelmed by the company’s moves earlier Tuesday.
“If successful, this series of transactions would buy the company more time,” he wrote. “However, free cash flow was a whopping minus-$403 million in its fiscal third quarter while cash-on-hand stood at just $153 million at the end of the period, and we expect minus-$170 million in free cash flow for the fourth quarter,” said Basham.
The stock has fallen 81.5% in the last 12 months, while the S&P 500
SPX,
has fallen 7%.
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