5 problems investors want to solve

A pedestrian walks past a Bed Bath and Beyond store on November 04, 2021 in Larkspur, California.

Justin Sullivan | Getty Images

1. A potential cash injection

A key part of the announcement will be to clarify how Bed Bath plans to replenish its coffers to pay suppliers, meet other expenses and continue to invest in the business.

Bed bath and beyond net loss widened in the last quarter as sales slowed and the company ended May with around $100 million in cash, down from $1.1 billion a year ago.

As Retailer Shares were swept up in a race fueled by memes in early August, the company said it was working with financial advisers and lenders to strengthen its balance sheet.

The retailer did not share details on how it would achieve this, but The Wall Street Journal reported last week that the company and asset manager Sixth Street Partners are nearing final terms on a nearly $400 million loan. Sixth Street and Bed Bath did not respond to CNBC’s requests for comment.

Bed Bath’s cash flow crisis could worsen if the company does not adequately prepare to take advantage of the busy back-to-school shopping season, said David Silverman, senior director of retail at Fitch Ratings.

“Your liquidity position can be strained as you progress through the year for a seasonally oriented retailer as you build working capital,” he said.

If Bed Bath gets extra cash ahead of the holiday season, it may question its financial stability and focus on fixing its business, said Wedbush Securities analyst Seth Basham.

“Then it comes down to whether the customer comes back or not,” he said.

2. Attract buyers

In addition to fixing its finances, Bed Bath needs to convince consumers to give it another shot.

Shoppers can easily buy household items like towels and kitchen gadgets from places like Amazon and Target. In nearly every category that Bed Bath sells, “there’s someone else in the market doing it better,” said Neil Saunders, managing director of GlobalData, a retail consultancy.

“The problem I have with Bed Bath and Beyond – and I think a lot of guests do – is that you’re like, ‘Why would I go there?'” he said.

Headlines about its dire financial situation could also put off clients, said Harry Kraemer, professor of management and strategy at Northwestern University’s Kellogg School of Management.

“Do I want to buy a gift card for my loved ones when the store may no longer exist in a year? ” he said.

For now, Bed Bath might want to turn to their tried-and-true strategy of offering tons of 20% off coupons. Discounts can be the fastest way to increase in-store traffic, especially as shoppers feel pinched by inflation, Wedbush’s Basham said.

But in the long run, Bed Bath needs to think of a smarter way to stand out, said retail consultant and former Sears executive Steve Dennis. Other struggling retailers have found a way forward: best buy added services like Geek Squad as sales of merchandise like CDs and DVDs declined, while petco and Petsmart launched private labels and added veterinary care, so they didn’t just compete on pet food prices.

Dennis warned struggling retailers can drag themselves deeper into trouble by shrinking store footprints or cutting staff to cut costs. This could lead to less convenience and poorer customer service, driving buyers away.

“It always worries me when companies get to this point because the things they can do easily usually make things worse,” he said. “You look like you’re making progress, but sometimes you end up cutting your muscle.”

3. The Commodity Enigma

Bed Bath and its competitors sell many of the same national brands, such as KitchenAid, Nespresso and Mikasa. To differentiate itself, Bed Bath took on competitors like Amazon and Macy’s on the price.

Under Tritton, its former CEO, the retailer took a new approach to merchandising. Starting in spring 2021, it launched nine private label brands that could only be found in its stores and on its website. Store displays prominently featured exclusive but lesser-known private labels, pushing back the national brands sought after by many shoppers.

The strategy has come under scrutiny as Bed Bath sales have declined. Comparable store sales fell by 12% and 24% in the last two quarters of the company compared to the same periods of the previous year.

It’s unclear what will happen with Bed Bath’s private label collection. The company arrested at least one of them: Wild Sage, a whimsical line designed for young customers and dorm decoration.

On a call with investors in June, interim CEO Sue Gove said a private label portfolio “belongs in our assortment” and touted Simply Essential as a success story. This line is made up of everyday items at low prices such as kitchen utensils and sheet sets.

4. Supply chain fixes

Like many other retailers, Bed Bath has struggled with its supply chain during the pandemic as ports have become congested and shopping habits have changed. But he also had company-specific issues.

During the holiday quarter, the retailer said so missed about $175 million in sales due to out of stock. Then, more recently, he was stuck with piles of excess inventory that he couldn’t sell. Inventories were up about 15% year over year at the end of May.

GlobalData’s Saunders said he noticed unbalanced inventory during store visits. In some categories, items are stacked almost to the rafters. In others, there is no stock.

“It doesn’t matter how great the products are or how nice they are or how badly people want to buy them,” he said. “If you can’t get them to stores to sell, it won’t work.”

Additionally, Bed Bath competes with rivals trying to get rid of unwanted goods. walmart and Target both reduce their profit outlook as they will have to cut sharply to sell inflated stocks, including small kitchen appliances and other household items.

5. “Goodbye” baby?

Earlier this year, Bed Bath’s the baby goods brand appeared to be auctioned off.

A possible sale or demerger of Buybuy baby gained traction in the spring when Bed Bath agreed to explore strategic options for the banner as part of a truce with Cohen.

Already, Bed Bath has sold parts of its business, including Christmas Tree Shops, Cost Plus World Market and One Kings Lane. Now he needs to raise more funds, but he may have missed the window to sell Buybuy Baby.

Bankers say trading in the retail sector has come to a virtual standstill with so much uncertainty surrounding consumer behavior amid high inflation. In June, Kohl’s ended talks to sell his business, citing a deteriorating retail environment and a difficult backdrop to raise financing. Walgreens too dropped plans to sell its UK-based Boots business due to changes in the global market.

“Inflation rose, corporate profitability began to tighten [and] boards were trying to figure out the way forward,” said Michael Kollender, head of retail and retail investment banking at Stifel.

But if a company is in enough trouble, it will have to make some sort of deal, Kollender said. If it’s not about divesting part of the business, he said it could be a restructuring.

If Bed Bath finds a buyer for BuyBuy Baby, however, it risks losing one of its strengths. GlobalData’s Saunders said the baby goods industry tends to be stable, even in tougher economic times.

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