Dive Brief:
- S&P Global Ratings dropped Bed Bath & Beyond’s credit rating to CCC from B- on Monday citing the company’s “mounting challenges, including very poor sales performance, deteriorating liquidity, and looming maturities.”
- The ratings firm has a negative outlook for the company, reflecting “the risk the company could default on its debt or pursue a restructuring in the coming 12 months if its turn-around efforts do not gain significant traction,” analysts said in a release.
- Potentially exacerbating its liquidity issues, some suppliers have restricted or stopped shipping to the retailer after it fell behind on payments, according to a Bloomberg report that cited anonymous sources. Bed Bath & Beyond did not immediately respond to Retail Dive's request for comment.
Dive Insight:
Last November, Bed Bath & Beyond announced it was accelerating a share repurchase program, amounting to roughly $1 billion in stock buybacks inside of a year.
While at the time traffic and sales had begun declining slightly from their pandemic highs — during a boom in home goods sales as consumers turned their attention to the homes they were stuck in — the retailer had cash on hand and projected confidence. It had at the same time launched a digital marketplace and a partnership to sell its wares at Kroger.
“We continue to execute our bold transformation and implement successful strategies that will fortify our near-term and long-term value creation,” then-CEO Mark Tritton said in the release announcing the company’s ramped-up buybacks.
Since then, the company has deteriorated financially and operationally. During the fourth quarter it lost $175 million in sales to out-of-stocks as it struggled to get goods on shelves amid widespread supply chain backups.
In Q1, Bed Bath & Beyond’s sales fell at an even quicker clip and its losses widened. The company announced Tritton’s exit at the time of the Q1 results, creating uncertainty around its turnaround strategy going forward.
Today, Bed Bath & Beyond could use the $1 billion it spent on those share repurchases. According to Bloomberg, the company is working with restructuring specialists at the law firm Kirkland & Ellis to help it potentially refinance its debt. Now Bloomberg is reporting that the company is behind on vendor payments, which has the potential to exacerbate liquidity struggles.
Measures from RapidRatings and CreditRiskMonitor show high default and bankruptcy risks respectively. The downgrade from S&P only adds to those troubles, heightening the perceptions of distress and likely raising the cost of borrowing for Bed Bath & Beyond.
“In our view, the company must make rapid, substantial spending cuts to quell its rate of cash burn from the first quarter, and the prospects for doing so have deteriorated,” S&P analysts said in the release. “We believe worsening macro conditions could amplify the risks of a restructuring if the company were unable to quickly return to meaningful profitability.”
