Struggling retailer Bed Bath & Beyond (NASDAQ:BBBY) announced a concerning equity offering in February. With sales trends under pressure and severe financial burn, the company was doing everything it could to stay afloat. Only a few months later, another significant change is on the way as management attempts to avert bankruptcy.
The corporation issued a proxy statement last week calling shareholders to a special meeting on May 9th. The meeting’s main purpose is to vote on a reverse split plan for the company’s common stock. If the board receives permission, it will decide on a ratio of 1:10 to 1:20. Given how much shares have plummeted in recent months, I expect the vote to result in the upper end of that range.
The fundamental reason for the separation is to provide the company with enough access to badly needed finance. Bed Bath & Beyond entered into a sales agreement with B Riley on March 30th to sell up to $300 million in shares. However, with the stock currently trading around 30 cents, selling even a portion of that would mean bumping up against the company’s maximum number of shares outstanding.
The company recorded $153 million in cash on its balance sheet at the end of the November fiscal period, along with slightly more than $21 million in long-term investments. However, there was over $900 million in debt due within the next 12 months, as well as another billion or so in long-term debt. Since then, additional deals like this one have occurred to raise new money, resulting in enormous dilution.
We should get an update on the company’s financial status soon, as fiscal Q4 results have typically been announced in the middle of April in the past. Unfortunately, management did predict that revenue would be around $1.2 billion, which was far lower than the average street expectation of $1.4 billion. It doesn’t help that the company is still closing stores and that early Q4 comparable sales are expected to fall 40%-50%.
In addition to eliminating non-core brands and Harmon shops in recent years, management has attempted to reduce expenses as much as possible. However, the corporation must devise a strategy to get the top line moving again. Consumers may be hesitant to shop at a retailer that may go out of business, and the company has had difficulty obtaining inventory at times due to suppliers being concerned about not being paid. The average street revenue estimate for the current fiscal year has practically halved since the summer of 2021, as shown in the chart below.
Analysts do not expect the sales pressures to abate anytime soon, so all eyes will be on management to learn how the newest cost-cutting initiatives have fared. With cash burn expected to continue, equity sales will likely continue once the reverse split is completed. It’s difficult to predict how many shares will need to be sold to raise the latest $300 million disclosed. That’s because we don’t know when the reverse split will be granted, or whether any sales will take place before then.
Finally, Bed Bath & Beyond is considering a reverse split to avoid bankruptcy. The company wants to raise hundreds of millions of dollars in new capital, but because the stock price is so low, it can’t do so without exceeding its authorized share count limit. Investors are expecting a critical update on the financial situation and cash flow, as revenue projections continue to fall. While the stock is currently reaching a multi-year low, there might still be further downside from here as investors face severe dilution.
Featured Image: Megapixl
Author Stephanie Bédard-Châteauneuf 
