Jan 5 (Reuters) – Bed Bath & Beyond Inc ( BBBY.O ) is preparing to file for bankruptcy protection in the coming weeks, people familiar with the matter said, after poor sales and an inability to compete with major online and big box retailers.
The U.S. home goods retailer is considering skipping debt payments due Feb. 1[ads1], one of the sources said, a typical move by distressed companies on the brink of bankruptcy to save money.
Shares of the retailer, once a category killer in products such as small appliances and bedding, ended Thursday down 30% at $1.69 after the company said it expected to report a significant third-quarter loss and there was significant doubt its ability to continue as a going concern.
The company said it was exploring a number of options to address falling sales that included declaring bankruptcy. The retailer said it has not made any final decisions on which course to take.
Bed Bath & Beyond had no immediate comment on any bankruptcy preparations beyond Thursday’s disclosure.
The company has interest payments on about $1.5 billion of bonds due Feb. 1, according to securities filings. The company is considering skipping the payout to save money, which would likely trigger a 30-day grace period before the company officially defaults, the people said.
Troubled retailers often seek bankruptcy protection after the holiday season to take advantage of the cash cushion from recent sales. Should the company seek bankruptcy protection, it would likely seek financing from existing creditors to help it navigate a court-ordered restructuring, one of the people said.
The retailer’s fortunes soured after it pursued a strategy focused on its own private label goods. Management has since reversed course to bring in national brands that buyers recognize.
But on Thursday, signs emerged that even that strategy has failed to take off, with the company reporting that it expects a loss of $385.5 million after sales plunged 33% for the quarter ended Nov. 26, due to lower customer traffic and reduced levels of inventory availability among other factors.
The company is scheduled to report its full results for the third quarter on Tuesday.
“The turnaround plan that was put in place last year is not working… To put it bluntly, the business is moving at rapid speed in the wrong direction with bankruptcy the most likely destination,” GlobalData analyst Neil Saunders said.
Bed Bath & Beyond has engaged the treatment and consulting firm AlixPartners LLP to help advise on options to deal with its financial problems, 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 on Thursday, Bed Bath & Beyond said it was “working with strategic advisors to evaluate all avenues to regain market share and improve liquidity,” but could not comment on specifics.
The company became a meme stock last year when shares rose 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 crashing.
Bed Bath & Beyond said in its previous financial update this fall that it had $850 million in cash, but had burned through $325 million in the second quarter.
The company had also asked its bondholders to swap their holdings for new debt to give it more breathing room to turn around the business, but canceled the deal on Thursday after not getting much interest from investors, according to US Securities and Exchange Commission filings.
Bed Bath & Beyond had previously considered selling its valuable buybuy Baby stores, which sell items for infants and toddlers, but held off in the hope that it could later fetch a higher price, Reuters reported.
buybuy Baby is the “crown jewel” of the company and is likely to generate the most interest from buyers in case the parent company decides to sell it as part of restructuring efforts, said Michael Baker, senior analyst at DA Davidson, without giving a valuation of the business.
The value of the chain helped the retailer take out a $375 million loan last year, the maximum amount it could borrow.
Reporting by Aishwarya Venugopal in Bengaluru and Siddharth Cavale in New York; Editing by Shounak Dasgupta, Subhranshu Sahu, Mark Porter and Anna Driver
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