Breakingviews: Meme investors go to bed, take a bath

Investors have nothing if not for hope. And that showed on Monday, when American sheets and curtains retailer Bed Bath & Beyond moved to bring in a new cash injection. The deal could keep the New Jersey-based company out of bankruptcy for another few months, potentially. But delaying the inevitable has opportunity cost.

Bed Bath & Beyond has been on the brink of collapse for a while, warning recently that a bankruptcy filing could be on the horizon. Sales fell nearly 30% in the nine months through Nov. 26, compared to the same period last year, while the costs to sell those goods declined only a fifth. With that trajectory, the company is expected to burn some $930 million this fiscal year on its operations alone, according to estimates from Refinitiv. It’s hardly a banner example of a turnaround story.

It had a moment to salvage some value previously in the meme stock craze. The retailer had been caught up in an irrational stock rally in early 2021, but unlike others including GameStop, Bed Bath & Beyond’s shares continued to fall sharply after the hype wore off – and the company missed its chance to capture the enthusiasm.

Recently, though, even as talk of bankruptcy has grown, shares in Bed Bath & Beyond have been on a tear again. In the month leading up to Monday’s market close, its share price nearly quadrupled.

Chief Executive Sue Gove is seizing the moment this time. After hours yesterday, news started to leak that the company was raising equity. That culminated in the announcement Tuesday morning that it had priced an offering of preferred stock and warrants, which comes on top of the rearrangement of some of its debt. It expects to bring in $225 million immediately through the offering – less than the cash its operations burned last quarter – with up to a further $800 million over time, if certain conditions are met.

Then what happens? Gove is unlikely to get the chance to raise more money: The company’s shares fell more than 45% on Tuesday morning following the news. And while she will close over 400 stores, an earlier bankruptcy could have helped the company get its debt and lease obligations down to a reasonable size in a more orderly – and possibly expeditious – fashion. Then Gove could have used new cash to reinvest in the better parts of the business – and perhaps keep her shareholders from taking a bath.