At some point we have to shop for things for most of us cannot make everything or a few things that we need and want. In the world of retail shopping there are many options and with COVID, the internet made for even more options. One option people have liked was the store Bed Bath & Beyond. The chain store was a success had grown to 955 stores in North America and also owns buybuy Baby stores.

In an article by Jessica Dinapoli and Mike Spector of Reuters, the management of the store is facing plunging sales, dwindling cash and heavy debt load or in simple terms cash flow is negative.

The company said its 3rd quarter results was a $385.5 million loss, after sales fell 33%. The strategy to focus on private label goods did not work and the company is trying to attract the national brands back to the store.

The company has not been doing well for a few years, but last year it became a meme stock and the price soared 400%. Activist Ryan Cohen, the chairman of GameStop Corp had a large holding but then sold and when it became public the shares fell.

Bed Bath & Beyond CEO Sue Gove said the financial performance was negatively impacted by inventory constraints as we partnered with our suppliers to navigate both micro and macroeconomic challenges. (in the retail world, suppliers ship to a retailer and expect money back in 30 to 60 days; given the company is losing money. suppliers tighten the money requirements before they give inventory).

The company said in the fall they had $850 million in the bank but burned through $325 million in the 2nd quarter.

Analysts are expecting the company will go through $1.5 billion in the next 2 years.

The company has asked bondholders to swap their holdings for new debt but cancelled the deal because there were only a few takers. All of Bed Bath & Beyond’s assets are being used to loan money, the maximum the bondholders will allow is $375 million.

Linking to dividend paying stocks, when a company declares it is seeking all options, you may like the company and want it to succeed but listen to the bondholders. All companies rely on debt to run their business and if it is going well, then the debt will be unsecured. The more the troubles of the company are brought to life, the more the bondholders want secure debt or tied to various assets of the company. When a company is not doing well, the value of the unsecured debt falls as investors expect cents on the dollar, rather than a full dollar. Even if you really like a company, listen to the debtholders for if the company has an opportunity to comeback, the bondholders have to become equity holders. Will they and do they want to?

There are more questions than answers, till the next time – to raising questions.