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Bed Bath & Beyond A Canary In The Coal Mine
Get ready for the “everything must go” sale at Bed Bath & Beyond.
Last week, Bed Bath & Beyond (BBBY) said it has “substantial doubt” it can stay in business.
The death of BBBY is a slow one. One that would’ve happened years ago had it not been for a free, zero-interest rate world.
Why? Because it’s a flawed company you want to avoid at all cost.
Regular readers know BBBY is one of our whipping boys. Here’s what we said August 2nd:
“Bed Bath & Beyond has great stuff. Yes, coupons are one of the most effective ways in converting potential buyers into actual buyers.
But what they’ve done is condition you to expect the coupons. To only shop there if you have one on hand.
This is great for you, the consumer. But horrible from a business standpoint.
Discounts reduce a company’s gross profit margins. Bed Bath & Beyond has effectively locked themselves into a lower margin business by conditioning consumers to wait for the coupons.
No coupons = no shopping.”
Bed Bath said it will pursue “strategic alternatives” and a “restructure” to help keep it alive. But none of that will help.
They’ve already tried these last-ditch efforts several times before. Strategic alternatives are gobbledygook for “we have no idea what else to do.”
(You can read how bad things have gotten at BBBY from our follow-up post on August 30th.)
The inevitable bankruptcy is near. From The Financial Post (emphasis added).
“Bed Bath & Beyond called off a planned debt exchange in connection with the warning. It had offered creditors the chance to swap unsecured bonds for a lower face value amount of new secured obligations in order to trim the company’s overall debt load.”
Its 2024 bonds traded down to 21 cents... meaning bondholders don’t think BBBY will make it to next year.
We don’t mean to focus on BBBY just for fun.
We’re focusing on BBBY to show you it’s a canary in the coal mine.
Hundreds of companies — public and private alike — won’t make it in this higher interest rate cycle.
The market has already priced in a lot of pain. Many tech companies are down 50-80%. Some are even down 90%.
But there’s a lot more pain ahead. Creditors have all the leverage now.
Many companies’ business models were based on cheap/free money. Now they’ll have to raise money and/or refinance at very costly terms.
Bed Bath won’t be the last company hitting the headlines of bankruptcy risk.
Check your portfolio. Expect the share price to remain under pressure if those companies don’t make money or have fortress balance sheets. Or worse… they go the way of Bed Bath & Beyond.
Good investing,
Lance