The saga of Bed Bath & Beyond continues Tuesday with news that hedge fund Hudson Bay Capital Management plans to buy more than $1 billion in equity through the retailer’s stock share sale it announced roughly 24 hours ago, according to reports in Bloomberg and The Wall Street Journal.
The Series A stock fund offering—$225 million for the shares, along with $800 million through the issuance of securities requiring the holder to purchase shares of Series A preferred stock in future installments—gives Bed Bath & Beyond the financial footing to avoid bankruptcy and pay some of its outstanding debts. Shares of the company—which skyrocketed more than 100 percent just days ago as a meme stock—plummeted by nearly 50 percent after the announcement, since the new financing will dilute shareholders.
“This transformative transaction will provide runway to execute our turnaround plan,” said Bed Bath & Beyond CEO Sue Gove in a statement posted to the retailer’s website.
Bed Bath & Beyond teetered on the edge of bankruptcy prior to this last-minute deal, having missed the interest payment deadline on more than $1 billion in bonds, along with defaulting on a loan from JP Morgan Chase. The company admitted last month in a Securities and Exchange Commission (SEC) filing that it didn’t have enough funds to cover its debts.
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While this deal breathes new life into the retailer, the company still plans to expand its store closure plan, increasing to 400 total locations. This news comes just a week after Bed Bath & Beyond announced it would close its Harmon chain of around 50 stores, plus 87 flagship brand stores and five BuyBuy Baby locations. The company said its goal was to operate around 360 Bed Bath & Beyond stores and 120 BuyBuy Baby stores across the U.S.
“We are optimizing our store fleet and supply chain and continuing to invest in our omni-always capabilities,” Gove said. “This will enable us to better serve our customers, and grow profitably, by directing merchandise where and how they want to shop with us. We are also prioritizing availability of leading national and emerging direct-to-consumer brands our customers know and love.” Additional plans include drop shipping, adding a marketplace, adopting an asset-light inventory approach and pursing “innovative collaborations,” the company said.
After ousting former CEO Mark Tritton last summer, Bed Bath & Beyond leadership said the company would discontinue its private or “owned brand” strategy to focus on national brands. But the retailer struggled with that transition as its coffers grew emptier, preventing it from paying outstanding invoices and prompting some vendors to suspend or delay shipments ahead of the holiday shopping season.
Bed Bath & Beyond also named a new interim chief financial officer, Holly Etlin, who also serves as a partner and managing director of Alix Partners, which the retailer brought on as a restructuring advisor in January before retaining a law firm specializing in bankruptcy.
“As we make important strategic and operational changes, we will continue to take disciplined steps to enhance our cost base and improve our financial position,” Gove said.
Though bankruptcy seems to be off the table for now, the company will have to make good on its turnaround plans. Plus, closing so many more stores could streamline proceedings if Bed Bath & Beyond eventually does have to file for bankruptcy. Selling off BuyBuy Baby could also help the company drum up the cash it would need to prepare for a Chapter 11 petition.