Revenues collapsed. Bankruptcy filing hangs over it. This is a money-suck. But hey, it incinerated $11.6 billion on share buybacks.
By Wolf Richter for WOLF STREET.
Shares of Bed Bath & Beyond [BBBY], one of the heroes in my pantheon of Imploded Stocks, spiked by 92% today during the day, and by 350% from a month ago, and then collapsed afterhours and gave up about half of that 350% gain in minutes after the company announced a desperate and ruthless proposal to sell a whole bunch of shares into this rally to raise over $1 billion, diluting the bejesus out of existing shareholders.
The appropriately lugubrious purple line indicates the afterhours action today that took shares down to $3.70 (data via YCharts):
If the company can pull it off, it would raise $225 million initially through the convertible preferred stock offering and later $800 million through warrants that would require investors to purchase preferred and common stock in the future.
If the company cannot pull off the offering, it said, it would likely be forced to file for bankruptcy protection.
According to sources of the WSJ, the company has secured investor backing for the deal, thereby diluting the bejesus out of the meme-stock jockeys and other existing shareholders. The company also secured a $100 million line of credit from one of its lenders.
Bed Bath & Beyond has been a meme stock queen for a while. It has all the fundamentals for a meme stock: huge losses, collapsing sales, chaotic management, a ruined business model, and a bankruptcy filing hanging over it. But it has a wild stock price, driven by the meme-stock crowd and a huge amount in short interest.
The meme-stock chart.
This whole episode is another reminder that the Fed, the ECB, the Bank of Japan, and all the other money-printer central banks need to remove many trillions of dollars and euros and yen and whatever from the system via QT because there is still a ridiculous amount of money floating around out there, and people are just throwing it around willy-nilly, with all kinds of side effects, including this nuttiness in the markets and the worst bout of inflation in 40 years.
Obviously, the company is doing what it should do. It’s socking it to these crazed existing shareholders; and given how big of a money-suck it is, it will likely sock it to the new shareholders as well. The era of free money has turned investors’ brains to mush, and this is part of the healing process.
The chart below shows the two-year action, the period when BBBY had become a meme stock, with spikes at the close to $52.89 in January 2021. You can barely see today’s 92% spike and afterhours collapse. At $3.70 in afterhours trading, the shares were down 93% from the January 2021 high (data via YCharts):
Killing the company with share buybacks.
On November 2021, the company bragged that it had incinerated $1 billion in scarce borrowed cash on its latest two-year bout of share buybacks, bringing its total cumulative share buybacks since 2006 to $11.6 billion.
The company could have invested some of the $11.6 billion in its ecommerce operations and in remodeling its stores. It could have used some of the funds to shut down other stores. It could have avoided debt and kept enough cash on the balance sheet to just fly through the brick-and-mortar meltdown that has been raging since 2017, and it would have had enough cash to fly through the next economic crisis. But no.
These are the cumulative share buybacks in dollars that the company incinerated to “return value to shareholders” (data via YCharts):
The buybacks in 2020 and 2021 that incinerated $1 billion in cash that the company now doesn’t have and desperately needs were apparently designed by the ingenious management team, from what I can tell, to speed up the process to bankruptcy.
The strategy appears to be working. The company has been warning multiple times that it might file for bankruptcy protection, including again today.
On January 26, in its 10-Q filing with the SEC, it said it had defaulted on its credit line with JPMorgan, and reiterated that it may have to file for bankruptcy.
Bed Bath and Beyond has not yet disclosed its revenues for its fourth fiscal quarter, which ends at the end of February. But we know it’s going to be a fiasco, after its third quarter fiasco, ended November 26, when revenues collapsed by 33% from the already collapsed revenues a year earlier.
With three horrible quarters under its belt and a revenue warning about the holidays, I estimated its Q4 revenues to where total annual sales would collapse another 30% from the collapsed levels a year ago to $5.5 billion. This company doesn’t have a business anymore. You cannot restructure something like this. This is just a money-suck:
Share-buyback besotted investors got what they deserved.
That surge in share price from 2010 through 2015 was paid for by incinerating billions of dollars on share buybacks. Shareholders, besotted with the idea of a retailer incinerating billions of dollars in cash on share buybacks, got what they deserved (data via YCharts):
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