Beleaguered retailer Bed Bath & Beyond ( BBBY) , perhaps way beyond, released its fiscal second-quarter financial results Thursday morning.
That's where the good news ends.
For the three-month period ended August 27, BBBY posted an adjusted loss of $3.22 per share (GAAP loss: -$4.59) on revenue of $1.437B. The loss print badly missed expectations that were already for a deep quarterly loss. The revenue number also fell short of consensus view and showed a year-over-year contraction of 27.6%.
This was the fifth consecutive quarterly year-over-year revenue contraction of at least 20% for BBBY.
To be fair, because we have to be fair, in late August, the company announced $500M in new financing, including a $375M loan while unveiling a turnaround plan that would close 150 locations, reduce headcount, and evolve BBBY's strategy regarding merchandise sold.
Digging in a little, for the quarter, comp sales decreased by 26%. Gross margin dropped from an adjusted 34% to 27.7%, while adjusted EBITDA margin dropped from 4.3% to -11.7%.
The buybuy Baby segment, which had been a rising star for the company, fell from grace, posting comp sales that decreased in the high teens percentage-wise. A year ago, that unit posted comp sales growth in the high teens.
Talking dollars and cents, gross profit dropped to $398.3M from $601.1M, operating loss widened to -$342.6M from -$84.1M, while net loss widened to -$366.2M from -$73.2M.
Fiscal 2022 Outlook
Bed Bath & (way) Beyond sees a comp sales decline of roughly 20% for the full year reflecting improvements made during the second half versus the first half.
The company sees adjusted SG&A (selling, general and administrative) expenses of approximately $250M below last year's total, reflecting a second-half effort to take cost optimizing actions. It sees capex at about $250M versus original plans for $400M.
Given this guidance, BBBY anticipates breakeven operating cash flow by year's end.
Balance Sheet/Liquidity
BBBY ended the quarter with a net cash position of $135.3M, down from $439.5M six months ago and down from almost an even $1B a year ago.
Inventories are listed at a valuation of $1.576B, down from $1.725B three months ago, and slightly below the year-ago level. I guess that's a mild positive. This brings current assets to $1.904B, down from $3.101B 12 months ago.
Current liabilities amount to $1.828B. This is also down over six and 12 months.
That leaves BBBY with a current ratio of 1.04, which on the surface, is (barely) acceptable. Given that inventory valuations are certainly unreliable, especially in this environment, the company's quick ratio runs at a really dicey 0.18.
Total assets add up to $4.667B, a decline from $6.067B a year ago. While that does include the already mentioned inventories, BBBY claims no "goodwill" or other intangibles. We appreciate that. Total liabilities less equity runs at $5.224B. This includes $1.73B in long-term debt. That debt-load is up 46.8% in six month's time.
Obviously a debt-load of $1.73B that appears to be growing and a cash balance of $135.3M that appears to be shrinking is a sub-optimal situation.
BBBY currently has access to $0.85B worth of liquidity. This reflects the already mentioned $375M FILO (first in last out) loan, and a recently expanded $1.13B ABL (asset based lending) credit facility. BBBY also recently raised a rough $30M through the sale of 3M shares of common stock of the 12M authorized in its "At The Market" offering program.
My Thoughts
I see the stock trading around $6.30 at the time this was written. That's down 2% from last night's close. This, I believe, is trading, perhaps algorithmic trading and probably not investing. It does sound like management is taking their situation seriously under interim CEO Sue Gove, and that's a positive. It just may not matter for now, how serious management is.
I understand that all turnarounds start somewhere, but if this turnaround is to be successful, it's not in the early innings, it's not even in the first inning, it's in the batting cage a couple of hours before the national anthem.
The most interesting thing I see in BBBY for the bulls is the short interest. At last glance, more than 30M shares of BBBY were held in short positions out of a 79.6M shares outstanding and a float of almost 77.3M shares.
A trader could sell one BBBY Oct. 21 $7 call for about $0.60 and sell one BBBY $5.50 put for about $0.60. That's a combined premium of $1.20. The stock would have to either rise above $8.20 or drop below $4.30 in less than a month's time for this trade not to work.
Just a thought.
