Home-goods retailer Bed Bath & Beyond filed for Chapter 11 bankruptcy protection Sunday in the U.S. Bankruptcy Court District of New Jersey, capping a long battle to turn the company around by cutting costs and raising cash to fend off creditors, pay vendors, and keep its shelves filled.
The Union, N.J.-based company announced the long-anticipated filing Sunday and said it is moving toward closing its 360 flagship Bed Bath & Beyond and 120 buybuy BABY stores even as the locations and the company’s websites will “remain open and serving customers” as the wind-down gets underway. It has a commitment for $240 million in financing from Sixth Street Specialty Lending to support operations through the bankruptcy process.
“Notwithstanding painstaking, creative and exhaustive efforts to right the ship along the way, Bed Bath & Beyond is simply unable to service its funded debt obligations while simultaneously supplying sufficient inventory to its store locations,” Holly Etlin, the firm’s newly appointed chief restructuring officer and CFO stated in a declaration filed with the court Sunday.
"While Bed Bath & Beyond had been on the leading edge of many brick and mortar critical retail trends, the company’s reluctance to compete in the e-commerce space was one of the consequential, early decisions that ultimately led to this day," Etlin's declaration filing states.
The bankruptcy filing — which follows the retailer’s warning in January that there was substantial doubt about its ability to continue as a going concern — marks the end of a 12-month-period that Etlin called “the most difficult and turbulent in Bed Bath & Beyond’s storied history.”
The firm has been challenged by “meme-stock” mania as well as by changes in consumer behavior stemming from the COVID-19 pandemic, Etlin states. It was most recently scrambling to raise capital on Wall Street to stave off bankruptcy and in September its C-suite also grappled with the death by suicide of its then CFO Gustavo Arnal.
Within days of Arnal’s death, the company swiftly picked its chief accounting officer Laura Crossen to serve as interim finance chief. In February, the firm appointed Etlin, a turnaround and restructuring expert, to replace Crossen. The choice spotlighted the potential for bankruptcy on the horizon as firms often turn to veteran reorganization experts when they are anticipating such a move, Shawn Cole, president of boutique executive search form Cowen partners, told CFO Dive at the time.
Etlin’s Sunday declaration filing states that she was recently appointed CRO, and has served as CFO since Feb. 7. Etlin is also a partner and managing director of the financial advisor to Bed Bath & Beyond, AlixPartners, where she has worked for about 16 years, according to the filing. She stepped into the roles of CFO and CRO one day ahead of the bankruptcy filing, according to an SEC filing.
In outlining Bed Bath & Beyond’s story in the declaration filing, Etlin described the “humble beginnings” of a once small chain of discount specialty linen and bath shops started by Leonard Feinstein and Warren Eisenberg with an investment of $50,000 each. It “rode the wave of American consumerism and new retail economics” to become at its peak what she called the largest home furnishing retailer with more than 970 stores in 50 states, according to the filing.
Signs of the retailer’s deteriorating financial outlook were evident in 2019, when the company reported its seventh consecutive quarter of declining same-store sales and it was challenged by outdated supply chain and product development and competition from e-commerce giants, Etlin stated in the filing. Efforts to compete by pushing private-label brands were unsuccessful.
There was also legal pressure. Last year the company was among defendants, which also included Arnal, named in a $1.2 billion shareholder class-action securities fraud complaint, Etlin stated. After Arnal’s death, the complaint was amended and Arnal was dropped as a defendant, Etlin stated in the declaration. The company in September said it believed the claims were “without merit.”
Etlin lauded the firm’s turnaround efforts even as they ultimately fell short.
“Defying all expectations over the past four months, Bed Bath & Beyond secured credit agreement waivers and amendments and was able to access the equity markets in February and March in a last-ditch effort to avoid bankruptcy,” Etlin stated in the filing. “But, in-store sales continued to decline — with fourth quarter sales falling by almost $1 billion dollars year over year — and strained vendor credit relationships which led to a lack of inventory.”
Most analysts were skeptical that the company’s eleventh-hour efforts would be successful: Morningstar analysts late last month pegged the company’s share value at $0. James Gellert, CEO of Rapid Ratings, in an emailed statement sent to CFO Dive Sunday, called the company’s attempts to avoid bankruptcy “heroic” yet characterized their story as a cautionary tale.
“BBBY serves as a stark reminder to all traditional brick-and-mortar stores: adapt to the fast-paced demands of modern consumers or risk sinking in today's hyper-competitive retail environment,” Gellert stated.