Bed Bath & Beyond equity offering ‘one of the most unusual financing situations we have witnessed,’ analyst says

Bed Bath & Beyond Inc.’s

unusual equity offering may have averted bankruptcy for the time being, but big challenges remain for the troubled retailer, according to KeyBanc Capital Markets analyst Bradley Thomas.

The equity offering “is one of the most unusual financing situations we have witnessed in 20+ years of following consumer and retail companies,” he wrote in a note released Thursday. “Fundamentally, we believe BBBY sales and margins continue to struggle mightily.”

After the closing bell Tuesday, Bed Bath & Beyond said it had closed the sale of convertible preferred stock as well as warrants to purchase common shares and convertible preferred stock. The sometime meme-stock darling raised about $225 million in the sale, as expected, and is expecting to receive an additional $800 million in future installments, assuming certain conditions are met.

Bed Bath & Beyond announced the equity offering at a time when the company appeared to be teetering on the brink of bankruptcy. But KeyBanc Capital Markets’ Thomas believes that bankruptcy is still looming on the horizon for the retailer. “While the offering has averted what was reportedly an imminent bankruptcy (bringing in $225M), we believe BBBY’s fundamentals and cash burn rate (of $400M in the most recent quarter) still make a bankruptcy seem like the most likely outcome eventually,” he wrote. “In the interim, BBBY may be able to raise additional capital through convertibles that were a part of this offering (up to $800M more), should new investors continue to buy shares.”

See Now: Bed Bath & Beyond making ‘last gasp’ to survive before filing for bankruptcy, says analyst, warning that the equity will eventually be wiped out

However, Thomas says that the issuance is highly dilutive, potentially adding multiples to the shares outstanding, and says the offering should weigh on the price-per-share of Bed Bath & Beyond. “While the math on newly issued shares is quite confusing, it looks to be doubling the current share count with the potential to add multiples more to prior shares outstanding levels,” he added.

KeyBanc Capital Markets has an underweight rating and 10 cent price target for Bed Bath & Beyond.

This week, Wedbush analyst Seth Basham said Bed Bath & Beyond’s equity offering may be a lifeline for the company — but it could spell trouble for the company’s shareholders.

“Against the odds, [Bed Bath & Beyond] secured financing for as much as ~$1.125 [billion] of additional capital, reducing the near-term risk that it enters bankruptcy and buying it more time to execute its turnaround efforts,” he said in a note released Wednesday. “However, this lifeline comes at an incredible cost to existing shareholders who could see over 80% dilution from convertible preferred shares and warrants if fully executed.”

Related: Bed Bath & Beyond leads meme-stock plunge as AMC and GameStop also tumble

The analyst continued: “As we see a low probability that the company achieves its 2023 turnaround plan, we ascribe little-to-no value to the company’s equity on a probability-weighted basis. Failure to secure the additional $800 [million] and/or an unsuccessful turnaround in 2023 could put the company back on bankruptcy’s doorstep.”

Wedbush maintained its underperform rating for Bed Bath & Beyond but slightly increased its price target to 25 cents from zero.

Bed Bath & Beyond’s announcement last month that it may need to declare bankruptcy sent the company’s stock sinking toward a 30-year low and followed a turbulent few years marked by strategic missteps, cash burn, challenging underlying business trends and the impact of the COVID-19 pandemic. Bed Bath & Beyond also recently disclosed that it was in default on loans that were called in.

Bed Bath & Beyond announced the closure of almost 130 stores on Jan. 10 as it attempts to resolve its financial woes. On Tuesday, the company announced “an ultimate operating goal” of 360 stores across the U.S., in addition to approximately 120 Buybuy Baby stores. In a filing with the Securities and Exchange Commission, the company said that its digital channel is also expected to account for a higher proportion of sales.

See Now: Bed Bath & Beyond’s debt woes puts nearly $6 billion in property bonds in focus

As of Nov. 22, 2022, the company had a total of 949 stores, including 762 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada; 137 Buybuy Baby stores; and 50 stores under the names Harmon, Harmon Face Values or Face Values.

The company’s stock has seen volatility recently. Bed Bath & Beyond’s stock rose 92% Monday in a move that swept up fellow meme stocks AMC Entertainment Holdings Inc.

and GameStop Corp.
before pulling back. The home goods retailer’s stock is down 83.9% over the last 12 months, compared with the S&P 500 Index’s

decline of 8.6%.

Of 11 analysts surveyed by FactSet, two have a hold rating, and nine have an underweight or sell rating for Bed Bath & Beyond.

Additional reporting by Ciara Linnane.

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