Bed Bath & Beyond is taking steps to avoid bankruptcy, but some worry it’s too little, too late.
The retail chain this week said it plans to close an additional 150 stores and raise more than $1 billion in funding through a public stock offering. The company has so far raised about $225 million and expects to sell an additional $800 million worth of shares over time.
Bloomberg reported that Hudson Bay Capital Management is the anchor investor in the share sale. Hudson Bay and Bed Bath & Beyond did not immediately respond to a request for comment from USA TODAY.
While the deal is a boon to the company’s turnaround efforts, experts say the retailer may still be on a path to bankruptcy.
The share sale “is a lifeline,” said Diane Lourdes Dick, a law professor at the University of Iowa. “It can alleviate their immediate distress. But it isn’t addressing the underlying issues that have put the company into the position that it is in.”
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Bed Bath & Beyond said the money from the share sale would be used to repay outstanding debts. Last month, the company revealed that it defaulted on its credit line with JPMorgan.
Edward Morrison, a professor at Columbia Law School, said the company’s decision to sell shares was a surprise.
“It’s rare for a highly distressed firm to raise equity. And keep in mind that Bed Bath and Beyond is not just a distressed firm – that its major lender has declared default,” he said. “Usually that means that a bankruptcy filing is highly probable in the coming weeks. So to see a firm issue of equity at this moment is really unusual.”
Bed Bath & Beyond on Tuesday said it would continue to focus on turnaround plans by “optimizing its store footprint, investing in inventory, and pursuing infrastructure improvements.”
After operating more than 950 stores globally this time last year, the company aims to pare down US operations to 360 Bed Bath & Beyond locations and 120 buy-buy Baby stores.
What does this mean for shoppers?
It’s unclear how quickly Bed Bath & Beyond will shutter its stores or what the closures mean for inventory.
Morningstar analyst Jaime Katz said the company will likely move products from the shuttered locations to other stores, although shoppers could see certain products get marked down inside stores set to close.
“The high-demand products will be more likely to be delivered to the locations that will remain operating,” Katz said. “I suspect there will be sales at the locations that they are closing. Whether or not those are the actual items that you want to purchase on sale is the concern.”
As for shoppers wondering whether their Bed Bath & Beyond gift cards are safe, Morrison said consumer-focused companies entering bankruptcy work “as hard as possible” to honor gift cards and warranties during the bankruptcy process to retain customer confidence.
“Even if Bed Bath & Beyond enters bankruptcy, it is highly likely that it will honor its gift cards,” he said. But “there is a real risk that any retailer entering bankruptcy will not come out. And those gift cards may become valueless.”
Is Bed Bath & Beyond heading toward bankruptcy?
Katz called Bed Bath & Beyond’s stock offering a “last-ditch” effort to stave off bankruptcy.
“From my perspective, it does not change the long-term outcome of this business. And we think ultimately, it just buys them more time to try to dig out of a perilous situation,” she said. “Our fear is that this business will eventually run out of money and execute a turnaround.”
Katz in an analyst note commended the company’s decision on Feb. 2 to appoint corporate turnaround expert Holly Etlin as interim CFO but noted it may not be enough.
“While Etlin brings years of turnaround experience to the table, we feel the company is too late in putting such talent in key roles, particularly given the consumer’s willingness to spend in the home furnishing category and the overarching macroeconomic climate,” Katz said in the note.
Bed Bath & Beyond shares on Wednesday closed at $2.61, down 13% from the day prior.
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This article originally appeared on USA TODAY: Bed Bath & Beyond closing stores, selling stock to avoid bankruptcy