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Bed Bath & Beyond (BBBY) is all gloom and doom with mounting losses, layoffs and a potential bankruptcy

Bed Bath & Beyond Inc. (NASDAQ: BBBY) delivered a disappointing earnings report for the third quarter of 2022 as sales declined and losses mounted. The company has been struggling for a while now and the latest earnings announcement does not give much hope for its prospects. Last week, the company said it was doubtful it could continue as a going concern. The stock, however, was up 21% on Tuesday.

Quarterly performance

For the third quarter of 2022, Bed Bath & Beyond reported net sales of $1.25 billion, which was down 33% from the prior-year quarter and below market estimates. Comparable sales declined 32%. The top line was hurt by lower in-stock position of approx. 70% and a drop in customer traffic. Adjusted loss per share was wider than expected at $3.65.

Actions

Bed Bath & Beyond has been revamping its assortment by reducing its owned brands merchandise and shifting more towards national brands to drive sales. Owned brands inventory penetration has declined 10 percentage points versus peak levels during the first half of the fiscal year.

The company has been holding clearance sales at its closing stores to reduce its inventory levels. BBBY is on track to close around 150 stores by the end of fiscal year 2022. Its gross margin in Q3 declined to 22% from 35% in the year-ago period as a result of continued clearance activity related to owned brands, as well as higher promotions.

During the third quarter, BBBY faced challenges with regards to vendor payment terms and credit line constraints that led to lower receipts and lower in-stock levels which in turn hurt sales. However, the company has managed to increase its in-stock levels to a range above 80%.

BBBY continues to cut costs as part of its turnaround efforts. It remains on track to deliver approx. $250 million in SG&A savings for the second half of FY2022 versus last year. It has initiated cost reductions of approx. $80-100 million, which include lowering its headcount, and has identified an additional $80-100 million savings opportunity across its supply chain.

Going concern warning

Last week, Bed Bath & Beyond provided a business update stating that based on its recurring losses and negative cash flow, it was doubtful that the company would be able to continue as a going concern. It said it was considering all possible strategic alternatives such as restructuring or refinancing debt, seeking additional debt or equity capital, delaying strategic initiatives, selling assets and other measures, including filing for bankruptcy.

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