Is the writing on the wall for Bed Bath & Beyond?
After the homewares chain fired its chief executive and head of merchandising following a first-quarter flop, the company now has fresh problems on the financial front after S&P Global Ratings downgraded its rating on Monday. credit rating at “CCC” from “B-”. The credit rating firm gave the retailer a “negative” outlook, saying it could soon have serious liquidity problems.
“We believe macro conditions are deteriorating and the outlook for homewares sales continues to deteriorate. Other retailers have reported a large and rapid decline in discretionary retail buying, and we believe Bed Bath & Beyond will remain sensitive to future declines,” S&P said. “The negative outlook reflects the risk that the company could default on debt or pursue restructuring over the next 12 months if its turnaround efforts do not win. in strength.”
Bed Bath & Beyond spent nearly $500 million in the first quarter, S&P pointed out, and with a 45% chance of a recession over the next year, there is a growing risk that the chain “will face to a rapid liquidity crunch” to come.
According to Drew McManigle, founder and CEO of Macco Restructuring Group, the cash burn rate, an important indicator of corporate well-being, can tell a company where it is heading. Businesses that burn through cash fast should scramble to cut costs. But S&P said the “prospects of doing this have deteriorated” for Bed Bath & Beyond.
Adding to the chain’s problems, if BBB doesn’t secure enough financing to please sellers, it may not have enough holiday inventory, “leading to a rapid downward spiral and creating the risk of bankruptcy,” said Wedbush Securities analyst Seth Basham in a research note. Monday. The retailer is promoting aggressive markdowns on “thousands of mostly branded products”, he added.
Bed Beth & Beyond should consider selling Buybuy Baby to bring in proceeds of $630 million to $910 million, the analyst suggested. But while it would give the chain more time, Basham said it likely wouldn’t change the company’s “negative outlook” and customer service issues.
Wedbush’s memo follows a Bloomberg report last week that some suppliers stopped shipping new products because Bed Bath & Beyond failed to pay its bills. On top of that, credit insurers do not cover shipments to the retailer.
Suppliers who set foot on the ground can be the proverbial nail in the coffin of retailers. That’s what happened to Kmart in 2002, when letter carriers stopped giving the green light to chain deliveries after Prudential Securities said the retailer could go bankrupt. Of course, once the vendor’s product came to a halt, Kmart had no choice but to file for bankruptcy three weeks later.
Bed Bath & Beyond is believed to be working with Kirkland & Ellis, the law firm of choice when retailers think bankruptcy might be on the table. The chain widened its first-quarter net loss to $358 million from $51 million a year ago, as net sales fell 25% to $1.46 billion from $1.95 billion .
The August S&P report for the most vulnerable retail industries in the United States noted that home furnishings retail had a one-year median probability of default of 5.4%, behind only the Internet retail and direct marketing group at 7.8%.
Altmeyer Home Stores filed for bankruptcy last month to liquidate its assets.
Shares of Bed Bath & Beyond fell 52% last week after billionaire activist Ryan Cohen and his company RC Ventures sold their stake in the chain. On Monday, shares were down another 16.2% to close at $9.24 on Nasdaq.