We all knew it was going to be bad, but it was worse. Bed, Bath & Beyond’s earnings were terrible, their cash got sucked up, and the CEO is out. The CEO’s credibility was already toast, but I want to pile on: their share buybacks might go down as some of the worst timed in history. Their investor day targets were laughable and I feel sorry for anyone who believed them. They also might be the fastest “great liquidity situation doing ill timed buybacks” to bankruptcy I have seen in awhile.
In my last Bed, Bath and BeyBOND post I said,
I calculate LTM EBITDA of $190mm as the turnaround plan ran up against snarled supply-chains. Now we have changing consumer trends, which Target called out. So expectations are just $51MM in EBITDA for FY’22 (ended Feb ’23) and then going to $260MM in ’23.
This all sounds pretty bad compared to their investor day goals of $950MM. Management credibility is bad. And with everything else going on, I’m not sure many have appetite to invest in retail right now.
So we knew it would be bad, but it was Bed, Bath & BeREALLyBAD. EBITDA was negative $225MM. Woof. Expectations were negative $85MM.
As a result, their liquidity got zapped pretty quickly and they burned almost $500MM of cash. Good thing they were still buying back stock this quarter (what a clown show).
As a result, the bonds have cratered. In my last post, I mentioned I was interested in the 2034s at 50 cents. However, since that post the 2024s cratered from about 75 cents on the dollar at the beginning of June 2022 to 42 cents.
Ok – call me crazy, but I am taking a small flier on the 2024’s. The company is clearly in a distress scenario, but they also still have $900MM of liquidity. We could still see a fire sale of BuyBuyBaby (a big if), but there is value here to someone to loan-to-own, in my view.
BBBY still has $1.1bn of book value of real estate and $258MM of net working capital. I think they will start to sell down their $1.7BN of inventory over this year to generate cash and get over the 2024 maturity wall and they have room for mark downs of inventory to generate cash.
On the flip side, they still have $1.4BN of debt, but about $1.2BN of it is trading for less than 50 cents on the dollar! So $1.3BN of real estate and NWC vs. $600MM of market value of debt (it is actually less) and $200MM of ABL. That leaves a gap of about $500MM to work with.
My pre-mortem expectation is they try to do a distressed exchange with the 2024s. They may generate enough liquidity to tender a portion of them (it is less than $150mm market value today – theoretically could use the ABL). My guess is liquidity worsens further next Q before they start to see some inflows from working capital.
One thing I know for sure – expect some coupons in the mail soon!