Bed Bath & Beyond, Part 3

BBBY shareholders go 'ape' shit

With Bed Bath & Beyond, it seems that all news is bad news, for shareholders at least. The Company today announced the highlights of its latest revised strategic and financial plan, a $500 million increase in available credit facilities, preliminary results for the last fiscal quarter and the firing of its COO. In response, the BBBY share price fell by 20% and is again below $10, down from a high of $27 just a few weeks ago. At today’s closing share price ($9.50), the shares are down 90% from its all-time high and the Company has an equity market value of just $750 million.

The Company’s latest revised strategic and financial plan contemplates the retention of the 'buybuy Baby’ business (which the Company was previously considering selling), yet another repositioning of its branding and merchandising strategy, the planned closure of 150 low-performance stores (down from 950 currently and over 1500 at the peak), a 20% cut in corporate and supply chain personal, large reductions in annual operating expenses ($250mm) and capital investment ($150mm), and the registration of another 12 million common shares for future issuance. Much of this could reasonably be perceived as good news, at least by BBBY standards, but that is not how the stock market interpreted it, with the share price down 20% in response.

In my last Bed Bath & Beyond Post, captioned somewhat facetiously as The Meme Lord’s Pump & Dump, I recounted the colorful story of how Ryan ‘Papa’ Cohen of GameStop fame knowingly or unknowingly suckered a bunch of ill-informed meme stock investors (aka ‘apes’) to follow his large investment in BBBY, driving up the share price, and then dumped onto the market his entire position by selling into a subsequent ‘Reddit Rally’. And he did this just four months after successfully placing three of his nominees onto the BBBY board of directors and just two weeks before today’s release of the Company’s new strategic and financial plan and preliminary Q2 results.

To be clear, I am not at all accusing Mr. Cohen of conducting an actual ‘pump and dump’ scheme, or of trading on insider (non-public) information, or even of filing a misleading or delinquent 13D. But you have to admit, the facts do not look good. And if I were one of the gullible meme stock investors who blindly followed Cohen into the BBBY shares, and maybe even bought more while Cohen was selling, I would be mighty pissed. If fact, you might say I would be going ‘ape’ shit right about now.

But why did the BBBY share price fall 20% on the back of today’s corporate news? After all, the Company has apparently raised an extra $500 million of much needed financing and plans to significantly reduce its future cash burn rate, enhancing liquidity in the corporate treasury which was running perilously low on funds (down to just $100mm at the end of the last quarter). Perhaps the stock market was spooked by the Q2 preliminary results, including the 20% fall in second quarter comp store sales and a higher than expected cash burn rate (totaling $800mm year to date). Or perhaps the market did not like the Company’s decision to retain the ‘buybuy Baby’ business or the Company’s continuing back and forth on merchandising and operating strategy. Or perhaps it was last week’s bond rating downgrade to CCC (one notch above Default) or Company’s failure to disclose the terms of its expanded (and very expensive?) credit facilities. Or just possibly it was the announced registration of another 12 million shares reserved for future issuance, which at today’s share price won’t raise much in the way of equity capital but will nevertheless dilute the ownership interests of the current shareholders by about 15%.

In a rational world, the correct answer would likely be “some or all of the above”, but who really knows what causes share prices to move in today’s meme-driven stock market. But for whatever reason, there were today a lot more BBBY share sellers than buyers, with no Papa Cohen there to pick up the cheap (or at least low priced) shares.

I have no idea what the future holds for Bed Bath & Beyond, but the BBBY shareholders and board members can only hope that retail customers will show more sustained interest in the Company’s newly restocked merchandise than retail investors do in its shares.

Links:

Bed Bath & Beyond to Close 150 Stores, Cut Staff, Sell Shares to Raise Cash, WSJ, August 31, 2022

Bed Bath & Beyond Looks Washed Out, WSJ Heard on the Street, August 31, 2022

Bed Bath & Beyond SEC Form 8-K, with Press Release and Investor Presentation, August 31, 2022