Why Bed Bath & Beyond Might File for Bankruptcy

Recovering from the COVID-19 slump has been tough for retailers, especially those selling discretionary goods. Bed Bath & Beyond (NYSE: BBBY) is among them. Whereas its stock is still popular among Reddit traders (WallStreetBets was instrumental in triggering a short squeeze in Bed Bath & Beyond as well as GameStop and AMC Entertainment), the company might face bankruptcy amid falling sales and soaring debt.

In the quarter ended May 28, 2022, Bed Bath & Beyond’s sales fell 25 percent year-over-year to $1.46 billion, missing analysts' forecast of $1.51 billion. At the same time, its net loss swelled year-over-year to $358 million from $51 million. It had only $107 million in cash at the end of the quarter.

To make things worse, Bed Bath & Beyond has announced that CEO Mark Tritton, who was previously with Target, has quit the company. Tritton was leading the company’s turnaround efforts and his exit came in as a shock to markets.

Ryan Cohen’s RC Ventures, the largest individual investor in Bed Bath & Beyond, also sold all of its shares after BBBY stock's short-squeeze-driven rally. The stock slumped after Cohen’s exit. Whereas Cohen exited at a profit, that may not be the case for retail investors down the road.

Bloomberg reports that Bed Bath & Beyond has hired Kirkland & Ellis, a firm specializing in bankruptcy, and that some of Bed Bath & Beyond’s suppliers have halted shipments to the troubled retailer. Companies providing short-term funding and credit insurance for some of Bed Bath & Beyond’s suppliers have also cut off services.

Bed Bath & Beyond bonds' rising yields are another sign that markets see bankruptcy on the horizon. Furthermore, S&P Global Ratings has lowered Bed Bath & Beyond’s credit rating and has a negative outlook, which might mean more rating downgrades in the future. The deteriorating U.S. economy isn't helping Bed Bath & Beyond, either.

Wedbush analyst Seth Basham fears a Bed Bath & Beyond bankruptcy. He said, “If the company does not secure adequate financing to appease its vendor base, it might have not appropriate inventory for the key holiday period, leading to a fast downward spiral and creating bankruptcy risk.”

Bed Bath & Beyond is looking to sell its baby brand to raise cash. However, Basham believes that it would be a short-term fix at best and wouldn't change the outlook for the company’s core business.

He also believes that the brand is losing “resonance” with customers. Earlier this year, during their store visits, Bank of America analysts found that ACs were switched off to cut expenses, an allegation that Bed Bath & Beyond later denied.