Shares in Bed Bath & Beyond (BedBath) rose 92% in Monday's trading session. The company seems to be heading for bankruptcy due to mounting debt and losses, as well as a notice of default to JPMorgan. The company announced at the close of trading on Monday that it plans to raise US$1.025 billion through a share sale. This was followed by a drop of more than 30% in their price in after-hours trading. Will the company be able to recover from its tough situation?
What the BED, BATH & BEYOND company does
Bed Bath & Beyond has been in business since 1971, first as a shop specialising in bathroom supplies in New Jersey. Over the next few decades, the company expanded its product range to include bedroom, kitchen and home decor products, becoming one of the largest home goods retailers in the US. Today, Bed Bath & Beyond has more than 1,000 stationary shops and an online shop, and its products are available worldwide. Over the past few years, the company has been struggling to cope with increasing competition from online retailers such as Amazon, among others, which has put it in a difficult financial situation.
The term 'meme stock' refers to shares in companies that have become popular with investors through the online forum 'wallstreetbets'. In the case of Bed Bath & Beyond, the name 'meme stock' emerged in 2021, when a group of young investors began buying shares in the company as part of an organised campaign on the Reddit platform. As a result, Bed Bath & Beyond's share price soared, leading to compulsory share buybacks by funds that had a short position in the company's shares known as the short squeeze. These actions attracted the attention of the wider public and media, leading to the company being referred to as a 'meme stock'.
Company's difficult situation
As the Bloomberg website reports: "The retailer, which has been preparing for a Chapter 11 filing after lenders declared it in default last month, plans to issue convertible preferred securities and warrants, it said in a statement Monday, in a deal that would ultimately raise more than $1 billion". In addition, the company announced the raising of an additional $100 million first-in-last-out loan, which would provide first priority repayment to Sixth Street. Bed Bath & Beyond has also appointed Holly Etlin, an insolvency expert, as interim chief financial officer. Nevertheless, in January, following the announcement of $500 million in new funding and job cuts and the closure of 150 shops, the company expressed doubts about its ability to continue as a going concern.
From the latest Q3 2022 report, we could learn that the company had USD 153 million in cash and as much as USD 2.5 billion in liabilities with a maturity of less than 12 months and more than a second in long-term debt. The company has US$1.05 billion in fixed assets in the form of real estate and US$1.4 billion in ready-to-sell inventory. However, selling assets at such a value in such a short time seems impossible. It would, however, allow the company to pay off all its short-term liabilities. It is not helped further by the fact that the company is losing an average of USD 151 million q-o-q on its core business over the four quarters.
What does Wall Street think of BED, BATH & BEYOND's share price?
According to the Market Screener website, the company has 13 recommendations, and among them, the predominant one reads: "Sell". The average target price is set at USD 1.58, 73% below the last closing price. The highest target price is at USD 4 and the lowest is USD 0.00, assuming the company goes bankrupt.
Source: Conotoxia MT5, BedBath, Daily
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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