Bed Bath & Beyond stock has been batted around lately, driven largely by Reddit-related memes and an activist investor who decided to call it a day. But with all the stock activity, some critical considerations have arisen for a company that saw a turn-around attempt falter, top executives leave and suppliers become increasingly concerned about finances.
For its part, Bed Bath & Beyond’s share price has been battered since Thursday of last week, when the market became aware activist investor Ryan Cohen sold his entire 10% stake in the company after attempts to convince its board to improve liquidity. A share price that had gained due to what observers point out was meme-driven buying that drove the stock past $28 last week. The share price stood at $23.08 on Thursday, according to Yahoo Finance, before word got out about Cohen’s decision, which some observers believe was an opportunistic move to take advantage of the small-investor, Internet-driven rally. Bed Bath & Beyond stock closed at $11.03 on Friday, August 19, opening under $10, at $9.60 on Monday. In a short-lived rally, the share price reached $11.49 by mid-morning, but it slipped back under 10, to $9.77, at noon.
Despite the tumble, Bed Bath & Beyond’s share price, at least for the moment, remained clear of its nadir in July, when it spent time under $5 before the meme rally.
Cohen had been in active communication with Bed Bath & Beyond before he sold off his stake. In March, Bed Bath & Beyond entered into a cooperation agreement with the Chewy co-founder and Gamestop chairman and his RC Ventures LLC, under which the investor could nominate three director designees who would immediately become part of a Bed Bath & Beyond board that would temporarily extend to 14 members. Under the agreement, the additional board members would stand for election as part of the company’s slate at the Bed Bath & Beyond 2022 annual meeting, after which the board would revert to 11 members. Under the agreement, two of the Cohen-nominated board members would join a four-person strategy committee to look at strategic alternatives involving the company’s buybuyBaby operation.
Among those reviewing the Bed Bath & Beyond developments, Pulse Ratings analyst Dennis Cantalupo noted in an August 18 report that, beyond the share price and Cohen activities, reports had arisen that the company had hired law firm Kirkland & Ellis to help it address its debt load, which it is trying to manage amid a sales slump. Cantalupo said a Kirkland & Ellis hiring would be no surprise to Pulse Ratings, which had previously noted that Bed Bath & Beyond was exploring multiple avenues to improve liquidity and strengthen the balance sheet. He added that Kirkland & Ellis has significant experience with distressed retail operations.
Given that the Reddit community rather than an operational improvement had driven Bed Bath & Beyond’s share price gains, RC had been handed a potential opportunity to get a better return on investment than it was expecting a couple of weeks earlier. Yet, with Cohen gone, a possible infusion of cash arising from RC involvement is off the table, Cantalupo observed. Now, Bed Bath & Beyond has to cope with a worrisome cash burn and, potentially while considering a deal that would use buybuyBaby as collateral for a funds infusion.
Although it has enough liquidity for the coming year, Cantalupo wrote, it needs to get itself on sounder footing for a buybuyBaby-leveraged cash deal to be substantially effective and to reassure vendors who have been reconsidering shipments to the company.
Bed Bath & Beyond has suffered an inventory glut, which has had it limiting the flow of merchandise, but, soon, it will need to acquire fresh holiday-friendly goods to maximize its second-half business.
Morningstar Analyst Jaime Katz wrote in a research note published August 19 that Cohen’s withdrawal was bad enough for Bed Bath & Beyond, but a subsequent 8K filing by the company may also have had a negative effect due to a comment on liquidity.
In the filing, Bed Bath & Beyond maintained that it had made a statement in response to media inquiries to the effect of:
“We were pleased to have reached a constructive agreement with RC Ventures in March and are committed to maximizing value for all shareholders. We are continuing to execute on our priorities to enhance liquidity, make strategic changes and improve operations to win back customers, and drive cost efficiencies; all to restore our company to its heritage as the best destination for the home, for all stakeholders. Specifically, we have been working expeditiously over the past several weeks with external financial advisors and lenders on strengthening our balance sheet, and the company will provide more information in an update at the end of this month.”
Katz indicated that any information suggesting cramped liquidity implied higher near-term debt service costs and could darken perceptions of Bed Bath’s current cash flow outlook, impacted by weakening demand and a tough lending environment emerging from the Federal Reserve’s hawkish inflation-taming monetary policy. Still, Katz held that Bed Bath & Beyond’s sheet remains sound, although the deteriorating liquidity position could make dealing with challenges such as inventory write-downs, store closures and inflation harder, such that near-term profit will face pressure
