Bed Bath & Beyond: Dropping Coverage as Firm Files for Bankruptcy

We are dropping coverage of no-moat Bed Bath & Beyond BBBY after the firm filed for Chapter 11 bankruptcy on April 23. We updated our fair value estimate to $0 on Jan. 5 after the firm disclosed “substantial doubt about the company’s ability to continue as a going concern.” At that point, we concluded that persistent sales declines, inventory constraints, and bloated costs could not be overcome in a way to preserve equity value. Despite some valiant efforts to raise capital in the ensuing months, the firm’s continued existence was contingent on the market equity raises to provide liquidity for operations. But the limited demand for shares and the low per-share trading price left Bed Bath with an inability to raise enough capital to remain viable. While Bed Bath has $240 million in debtor-in-possession financing and intends to pursue dispositions of both of its nameplates, we don’t think the proceeds these potential transactions will create any value for shareholders. Rather, we think any cash received will be used to satisfy remaining obligations of the business, rendering any equity position worthless.