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Will Bed Bath & Beyond’s meme stock move transform its fortunes?
Bed Bath & Beyond is saved, at least for the time being. The retailer, which has been on Chapter 11 bankruptcy watch for months, yesterday issued a press release announcing a deal with Hudson Bay Capital Management (HBCM) that will provide funds for a public offering of its stock.
The New York Times on Monday reported that Bed Bath & Beyond was pursuing a plan to raise up to $1 billion through the sale of convertible preferred stock and by tapping into the company’s $100 million credit line.
Bed Bath & Beyond’s hail Mary was answered by HBCM, a $19 billion hedge fund with no relationship to Saks’ owner Hudson’s Bay Co. A Wall Street Journal article posits that HBCM is betting that the recent rise in the volume of Bed Bath & Beyond’s shares will continue as it remains a favorite of meme stock investors. The retailer’s shares were up 2.66 percent in premarket trading after a 2.85 percent decline yesterday.
“This transformative transaction will provide runway to execute our turnaround plan,” said Bed Bath & Beyond CEO Sue Gove in a statement. “We continue to put our customers at the center of every decision, positioning Bed Bath & Beyond to meet and exceed their expectations, while resetting our foundation for near- and long-term success. We are optimizing our store fleet and supply chain and continuing to invest in our omni-always capabilities. This will enable us to better serve our customers, and grow profitably, by directing merchandise where and how they want to shop with us. We are also prioritizing availability of leading national and emerging direct-to-consumer brands our customers know and love. As we make important strategic and operational changes, we will continue to take disciplined steps to enhance our cost base and improve our financial position.”
Bed Bath & Beyond, which has already closed hundreds of stores, plans to reduce the overall count of its namesake brand to 360 locations. It will also continue to operate 120 buybuy BABY stores. The retailer expects online sales to make up a bigger percentage of its total sales. A potential sale of buybuy BABY also remains a possibility.
- Bed Bath & Beyond Inc. Announces Completion of Public Equity Offering and Provides Strategic Update – Bed Bath & Beyond Inc.
- Bed Bath & Beyond Gets a Lifeline From Hudson Bay Capital – The Wall Street Journal
- Staring Down Bankruptcy, Bed Bath & Beyond Says It Will Sell Stock – The New York Times
- Bed Bath & Beyond Inc. (BBBY) – Yahoo Finance
Discussion Questions
DISCUSSION QUESTIONS: Did Bed Bath & Beyond have any choice but to lean into its meme stock status to obtain funds from Hudson Bay Capital Management after banks took a pass? Is there a way back to black for the retailer now that it has made the deal?
Poll
Loading …BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
Peter Charness
Retail Strategy - UST Global
The share placement is all about raising enough money to avoid going into bankruptcy. That’s vital because without funding or a buyer, there is a very real risk of Bed Bath & Beyond being forced into Chapter 7 liquidation — which would be the end of the company. For now, the proceeds will help pay down debt and remove the default status from some of the company’s loans. What it does not do is remedy the underlying problems which leave Bed Bath & Beyond a very broken business. Yesterday, management updated their plans but, being blunt, there is nothing in there that suggests they will be able to turn things around. Essentially, they are operating from a position of severe weakness and trying to patch up the many holes that exist.
This a bad sign of a desperate company. Bed, Bath & Beyond is in full-scale survival mode. The fact that no bank will touch this deal says a lot about it, and so does the fact that Hudson Bay Capital is interested. At this stage, I’m not sure what choices Bed, Bath & Beyond management has – none of them are good. Closing stores and cutting expenses is all they can do, but the downward spiral is in full flight and pulling out of it will take a miracle.
Hudson Bay Capital’s investment is a total head-scratcher. It’s hard to believe they are investing on Bed Bath & Beyond’s business and brand fundamentals. And it’s hard to believe they are investing a billion dollars on anything having to do with a meme stock. The only reason the stock is not crashing is the investment itself. And Bed Bath & Beyond was the best use of a billion dollars in this market? Why not wait and let it crash and pick up the pieces for pennies on the dollar if they think there is a future for the brand? Total head-scratcher.
Don’t scratch your head too long. Hudson Bay Capital is going to make a fortune in fees. None of this is cheap money. None. My hunch is they’ll make around $100 million on this “investment.”
HBCM isn’t investing in the company. They are investing in the meme play. They will be dumping their stock on the retail investors and short it to get an outsized return.
I wish I could say that Paula and Gene were wrong, but of course there is a lot of truth in what they are saying. $100 million (?) in fees being extracted from a business in desperate need of cash. Meme stock exuberance and volatility. Short selling. Not exactly a financier coming to the rescue. Maybe Hudson Bay Capital should be applauded for figuring out a way to make money off either the rebirth or the demise of Bed, Bath & Beyond. Or maybe the exposure to meme stock volatility will be more expensive than any amount of fees can offset.
Meme stocks? This is pump-and-dump territory for raising funds in the hands of retail investors to be shorted by professionals. Without this, Bed Bath & Beyond is looking at Chapter 7 before any turnaround happens. You know how bad the situation is when the investment bankers and private equity pass on the opportunity.
“Danger, Will Robinson!” Investors would do well to avoid any meme stock, based on recent history. As my mother would say, “don’t throw good money after bad.”
A housewares brand building a house of cards. It appears their strategic plans are now focused on day-to-day survival.
Without claiming to understand the meme stock phenomenon, I would ask how that worked out for Gamestop. The fundamental problems at Bed Bath & Beyond are probably best solved through a Chapter 11 bankruptcy. This should provide the financing needed to restock stores, and should also allow Bed Bath & Beyond to exit unprofitable leases at a more aggressive pace.
The alternative at this point was not a Chapter 11 restructuring, but Chapter 7 or the meme play.
I wonder if that equity deal was designed, sealed and delivered from Vegas? Hmm — $225 million with potentially more on the way invested in Bed Bath & Beyond, or 4 percent to 5 percent as a sure thing with safe deposits on that money. The next roll could be snake eyes!
Unfortunately this is a lifeline that is temporary. I don’t know if there is enough time to find a solution to keep them afloat.
Bed Bath & Beyond has a highly engaged customer population, has always been a place of discovery and has historically used promotional tactics very competitively (if not bluntly). With some investment in online accessibility + more refined, optimized promotional tactics, it is very possible for them to come back even better than before. I’m rooting for them, go Bed Bath & Beyond!
Wait, let me get this straight, HBCM is betting on the rise of the stock because they think Bed Bath & Beyond will remain a favorite of meme stock investors? What? Legitimate banks and PE firms did a major pass on this for many reasons, not the least of which is that this business is spiraling downward at such a fast rate that there is no hope for changing the trajectory.
Being a meme stock is nothing to brag about, yet it will offer them a very short-term advantage. More concerning is the CEO’s statement which talks about being obsessed with what’s right for customers. The problem is that great stores know what they are and are obsessed with delivering that unique value they offer — a much different focus than chasing customer whims. I remain skeptical yet hope that Bed Bath & Beyond pulls something useful out of the mess they’re in.
No! The statement by Bed Bath & Beyond CEO Sue Gove was a storyteller’s dream but soft on credible or believable actions given the dire state of the business. Magically, the transformation will happen, execution will be flawless, supply chains will be optimized, and consumers will flock to the stores with profitable sales growth.
The company doesn’t have the luxury of a sufficiently long runway. The gap between saying and doing, in the current business context, is significant regardless of good intentions or the smarts of the leadership team. A ship with so many leaks cannot focus on reaching a destination while fixing the engine and plugging leaks. For Bed Bath & Beyond, it’s only a matter of time before reality strikes (again).
Did Bed Bath & Beyond have a choice? Not any good ones and that includes leaning into its meme stock status. The most likely scenario at this point is that Hudson Bay Capital Management will bleed Bed Bath & Beyond to near death – or beyond – through fees. They aren’t investing in retail, this is a paper play. Can Bed Bath & Beyond survive? While hope springs eternal, this isn’t a positive sign.
They took the only path possible, short term. However long term they have to succeed as a retailer. Meme stocks come and go, and the retail traders who funded the meme stock phenomena during the COVID lockdown are pressured due to the economic slowdown.
HBCM is betting that the recent rise in the volume of Bed Bath & Beyond’s shares will continue as it remains a favorite of meme stock investors….
Make that “investors”: let’s not dignify the thinking that seems to underly this move.
Bed, Bath & Beyond was done in August, they just didn’t know it or refused to accept it. Comps store sales have been abysmal at -27% through the first three quarters of the year despite closing 1/3 of the worst performers. The company has projected negative 30% to 40% in 1Q23, ignoring 4Q performance (the current quarter), which could not have been any better. The company lost the customer, then lost the suppliers and finally lost access to credit. It has now resorted to a pure desperation equity play, taking advantage of an irrational meme crowd, which will just temporarily postpone the inevitable, a liquidation of the namesake chain with a potential sale of buy buy Baby. The Company’s own prospectus cautions against investing in its securities, unless you are prepared to incur substantial losses.