Bed Bath & Beyond Remains on Life Support After Managing to Find Liquidity

We don’t plan to alter our $0 per share fair value estimate on no-moat Bed Bath & Beyond BBBY and still expect the firm will eventually declare bankruptcy. While we think the firm has been successful in raising capital in creative ways, we don’t view any of the undertaken efforts as value accretive or effective at changing the underlying fundamentals of the business. In fact, given the ailing housing market (existing home unit sales fell 23% in February), it appears the downward spiral of demand has accelerated at Bed Bath, with the company noting that same-store sales had declined in the 40%-50% range in the fourth quarter (ending February). With such performance implying a more than 40% decline in fourth-quarter sales (worse than our estimate of a 33% contraction), we expect the full-year fiscal 2023 operating margin to be below negative 20%.

With shares closing at $0.80 on March 29, we think activating a $300 million at-the-market equity issuance signals a very limited field for financing for Bed Bath. The firm had 435 million shares issued, with 235 million available for issuance—which would represent more than a 50% increase in the share base, exacerbating already excessive shareholder dilution from recent financings. We think an equity offering was likely the only option for liquidity available, as the firm’s prior financing program with Hudson Bay was set to expire on April 3 given the $1 price failure threshold (which shares have not tipped since March 17). Even if Bed Bath can miraculously remain a going concern, we don’t think there’s an opportunity for shareholders to find return in the stock—indeed, our existing outlook fails to see feasible profits until 2026—and that’s only if it can figure out a way to avoid running out of cash in the next few months.