By Sam Boughedda
Speaking on Bed Bath & Beyond (NASDAQ:BBBY) ahead of a strategic update call with the company on Wednesday, a Morgan Stanley analyst outlined the topics they will be focusing on.
The analyst, who has an Underweight rating and $2 price target on the stock, explained they will be listening to comments on financing, cash burn, plans for stabilizing the business, comps/EBITDA outlook for '22, buybuy BABY thoughts, the vendor situation, outlook for spending in the second half, and the current Q2 run rate.
"There are critical months ahead, and the holiday has never been more important. It all comes down to this," said the analyst.
Bed Bath and Beyond shares rocketed in the first couple of weeks of August as retail investors flocked to the stock, representing a return of 'meme stock' traders. They have since fallen from the August high but have gained another 30% in today's session.
"Recent media reports suggest BBBY is finalizing terms to secure financing in the range of $375m to $400m. The magnitude of the potential financing and its terms are the most important components of this update. By our math, BBBY will burn about ~$1b of cash in '22, and may require ~$800m of liquidity ahead of the holidays for inventory, payables and for operations. If confirmed, there will likely be a steep cost to secure such financing, potentially a high interest rate, or some kind of PIK (payment-in-kind)," he wrote.
The analyst labeled securing financing as a "crucial first step," with the next step optimizing it between paying for inventory, reducing expenses, and investing in the business.
Regarding plans for stabilizing the business, the analyst stated it is "not a simple discussion with a clear path forward, and the market may naturally be skeptical given prior attempts at reviving the brand."
"Offering 20% off coupons for entire purchases (a recent tactic) is not a viable solution for profitable growth or brand building. Rationalizing SKUs (ie SKU de-proliferation) doesn't seem to be working either. Assuming financing is obtained, Q4's performance may hold the key to BBBY's future viability. Given the company's spotty Q4 track record in recent years, we are particularly interested in hearing how the company plans to navigate this upcoming holiday season," explained the analyst.