Jan 5 (Reuters) – Bed Bath & Beyond Inc ( BBBY.O ) is preparing to seek bankruptcy protection in the coming weeks, people familiar with the matter said, after poor sales and an inability to compete with major online and large retailers.
The US home goods retailer is considering skipping payments on debt due on February 1, one of the sources said, a move typical of struggling companies on the brink of bankruptcy to save cash.
Shares in the retailer, once a category killer in products such as small appliances and linens, fell 30% on Thursday to $1.69 after the company said it expected to report a significant loss in the third quarter and that there substantial doubts about its ability to continue as a going concern.
The company said it was exploring a number of options to deal with its falling sales, including filing for bankruptcy. The retailer said it has not made a final decision on which course to pursue.
Bed Bath & Beyond had no immediate comment on the bankruptcy preparations beyond its disclosure Thursday.
The company has interest payments of about $1.5 billion on bonds due Feb. 1, according to securities filings. The company is considering skipping the payment to save cash, which would likely trigger a 30-day grace period before the company is officially charged, the people said.
Troubled retailers often seek bankruptcy protection after the holiday season to take advantage of the cash cushion provided by recent sales. If the company seeks bankruptcy protection, it will likely seek financing from existing creditors to help it navigate a court-ordered restructuring, one of the people said.
The retailer’s fortunes worsened after it pursued a strategy focused on its own private label products. Since then, management has reversed course to attract buyers from recognized national brands.
But on Thursday, signs emerged that that strategy has also failed to take off with the company reporting that it expects to post a loss of $385.5 million after sales fell 33% in the quarter ended 26 November, due to lower customer traffic and reduced levels. of inventory availability among other factors.
The company plans to report its full third-quarter results on Tuesday.
“The turnaround plan put in place last year is not working… Simply put, the business is moving at high speed in the wrong direction with bankruptcy the most likely destination,” said Neil Saunders, GlobalData analyst.
Bed Bath & Beyond has hired consultancy AlixPartners LLP to help advise on options for dealing with 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 Thursday, Bed Bath & Beyond said it was “working with strategic advisors to evaluate all paths to regain market share and improve liquidity,” but could not comment further on specific relationships.
The company became a meme last year when its stock 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 tumbling.
Bed Bath & Beyond, in its financial update earlier this fall, said it had $850 million in cash, but had burned through $325 million in the second quarter.
The company had also asked bondholders to swap their stakes for new debt to give it more breathing room to turn around its business, but called off the deal on Thursday after not getting much interest from investors, according to filings with the US Stock Exchange. commission
Bed Bath & Beyond had previously considered selling its valuable baby shopping stores that sell items for babies and toddlers, but held out in hopes that it could fetch a higher price later, Reuters reported.
buybuy Baby is the company’s “crown jewel” asset and would likely generate the most interest from buyers should the parent decide to sell it as part of its restructuring efforts, Michael Baker said , a senior research analyst at DA Davidson, without providing a valuation of the business.
The chain’s value helped the retailer secure a $375 million loan last year, the maximum amount it could borrow.
Reporting by Aishwarya Venugopal in Bangalore and Siddharth Cavale in New York; Editing by Shounak Dasgupta, Subhranshu Sahu, Mark Porter and Anna Driver
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Jessica DiNapoli
Thomson Reuters
New York-based reporter covering American consumer products ranging from paper towels to packaged foods, the companies that make them and how they respond to the economy. It has previously been reported in boards of directors and companies in difficulty.