Bed Bath & Beyond Faces ‘Critical Months Ahead’ As Retailer Prepares To Give Strategic Update On Turnaround Plans

Topline

Shares of meme-stock favorite Bed Bath & Beyond, which have swung wildly in recent weeks, initially jumped before moving lower on Tuesday, a day before the struggling retailer will provide investors with a “strategic update” on plans to revive slowing sales and secure new financing.

Key Facts

Shares of Bed Bath & Beyond at first surged more than 8% higher before turning negative and falling roughly 10% to just under $12 per share by late afternoon, as investors nervously awaited the company’s strategic update before the market opens on Wednesday.

The decline on Tuesday follows a 25% jump a day earlier: Retail investors from the likes of Reddit’s WallStreetBets have continued to buy up shares en masse, in large part responsible for the stock’s more than 115% gain in August.

Bed Bath & Beyond interim CEO Sue Gove said that the call on Wednesday will include details about different “strategies and changes being implemented” to the business, while investors will also be looking for clues on whether the company has secured new financing.

Last week, shares of Bed Bath & Beyond surged on news that the retailer was finalizing a roughly $400 million loan deal with Sixth Street Partners to help boost its cash levels and pay down existing debt.

“The magnitude of the potential financing and its terms are the most important components of this update,” according to Morgan Stanley analysts, who maintain a “sell” rating and price target of $2 per share for the stock.

Securing financing will be “no easy task given current revenue declines,” but it is a “crucial first step,” the analysts say, as the company could then split up the loan “between paying for inventory, reducing expenses, and investing in the business.”

Crucial Quote:

Bed Bath & Beyond is facing “critical months ahead” and the holiday season “has never been more important,” Morgan Stanley analysts wrote on Tuesday. “It all comes down to this…”

What To Watch For:

Cash burn and vendor support are also key issues that will need to be addressed during the company’s strategic update on Wednesday, the firm writes. Stabilizing the struggling retailer will take some time, and the “market may naturally be skeptical given prior attempts at reviving the brand,” the analysts predict. Still, if Bed Bath & Beyond is able to obtain loan financing in the short-term, the company’s level of profitability and success offloading inventory during the holiday season “may hold the key” to the company’s future viability, Morgan Stanley argues.

Surprising Fact:

Over the last 12 trading days, Bed Bath & Beyond has either been the best or worst-performing stock in the S&P 1500 (which includes the S&P 400, S&P 500 and S&P 600 indexes) on nine different trading days, according to Bespoke Investment Group. “It’s often tempting for investors to go where the ‘action’ is, but no one ever gets rich following the crowd,” Bespoke says.

Key Background:

Bed Bath & Beyond shares have been swinging wildly in recent months, as retail traders continue to drive up the stock despite a wave of analyst warnings about unrealistic valuations and the company’s high cash burn. The stock skyrocketed in early August before tanking on August 18, when activist investor and GameStop chairman Ryan Cohen announced he would sell his roughly 10% stake in the retailer. Shares jumped again last week, however, as reports of a new loan deal first surfaced.