Bed Bath & Beyond Inc (BBBY.O) is preparing to
seek bankruptcy protection in coming weeks, people familiar with the matter
said, following poor sales and an inability to compete with large online and
big-box retailers.
The U.S. home goods retailer is considering
skipping debt payments due Feb. 1, one of the sources said, a typical move
distressed companies on the verge of bankruptcy take to conserve cash.
Shares of the retailer, once a category killer in
products like small appliances and bed sheets, ended down 30% on Thursday at
$1.69 after the company said it expected to report a significant third-quarter
loss and that there was substantial doubt about its ability to continue as a
going concern.
The company said it was exploring a range of
options to address its plunging sales that included declaring bankruptcy. The
retailer said it has not made any final decisions on which course to take.
Bed Bath & Beyond had no immediate comment on
any bankruptcy preparations beyond its disclosure on Thursday.
The company has interest payments on roughly $1.5
billion of bonds due Feb. 1, according to securities filings. The company is
considering skipping the payout to conserve cash,
which would likely trigger a 30-day grace period before the company officially
defaults, the people said.
Troubled retailers often seek bankruptcy protection
following the holiday season to take advantage of the cash cushion provided by
recent sales. Should the company seek bankruptcy protection, it would likely
seek financing from existing creditors to help it navigate a court
restructuring, one of the people said.
The retailer's fortunes soured after it pursued a strategy
focused on its own private label goods. Management has since reversed course to
bring in national brands shoppers recognized.
But on Thursday, signs emerged that this strategy
too has failed to take off with the company reporting that it expects to post a
loss of $385.5 million after sales plunged 33% for the quarter ending Nov. 26,
due to lower customer traffic and reduced levels of inventory availability
among other factors.
The company is scheduled to report its full third
quarter results on Tuesday.
"The turnaround plan put in place last year is
not working. ... Put bluntly, the business is moving at rapid speed in the
wrong direction with bankruptcy the most likely destination," GlobalData analyst Neil Saunders said.
Bed Bath & Beyond has enlisted turnaround and
consulting firm AlixPartners LLP to help advise on options for addressing its
financial woes, people familiar with the matter said.
In addition to AlixPartners, the company is being
advised by restructuring lawyers at Kirkland & Ellis LLP and investment
bankers at Lazard Ltd (LAZ.N), one of the people said.
AlixPartners and Lazard declined to comment.
Kirkland did not immediately respond to a request for comment. In a statement
to Reuters late on Thursday, Bed Bath & Beyond said it was "working
with strategic advisors to evaluate all paths to regain market share and
enhance liquidity" but could not comment further on specific
relationships.
The company became a meme stock last year when its
shares soared more than 400%. Activist investor Ryan Cohen, the chairman of
GameStop Corp (GME.N), took a stake in Bed Bath & Beyond, which he later
sold, sending shares crashing.
Bed Bath & Beyond in its prior financial update
in the fall said it had liquidity of $850 million but had burned through $325
million in the second quarter.
The company had also been asking bondholders to
swap out their holdings for new debt to give it more breathing room to turn
around its business but canceled the deal on Thursday
after not getting much interest from investors, according to filings made with
the U.S. Securities and Exchange Commission.
Bed Bath & Beyond had earlier considered
selling its valuable buybuy Baby stores that sell
goods for infants and toddlers but held off in the hopes it could later fetch a
higher price, Reuters reported.
buybuy
Baby is the "crown jewel" asset of the company and would likely
generate the most interest from buyers in case the parent company decides to
sell it as part of its restructuring efforts, Michael Baker, senior research
analyst at DA Davidson said, without providing a valuation on the business.
The value of the chain helped the retailer ink a $375 million loan last year, the maximum amount
it could borrow.