Bed Bath & Beyond just got another bit of good news.
Glass Lewis on Wednesday urged the retailer’s shareholders to push through the chain’s risky reverse stock split plan after fellow proxy advisory firm Institutional Shareholder Services (ISS) offered the same advice earlier this week. The development means Bed Bath & Beyond stands a better chance of seeing the financial maneuvering pay off.
The company on Wednesday said the Glass Lewis report noted how the “benefits of the reverse stock split outweigh potential drawbacks.”
That’s similar to the ISS finding that the plan would help the cash-strapped company raise enough capital to continue its turnaround. A special shareholders’ meeting to vote on the proposal is set for May 9. Meanwhile, the company has inked a $120 million vendor consignment agreement with ReStore Capital, an affiliate of Hilco Global, to help it supplement inventory at both Bed Bath & Beyond and and its BuyBuy Baby banner.
A regulatory filing with the Securities and Exchange Commission indicated that the share split ratio would range from “1-for-10 to 1-for-20.” The equity financing route is one way Bed Bath & Beyond can raise much-needed capital without leveraging its balance sheet. But it means the retailer ends up owning fewer total shares, and gives up some control to investors.
Bed Bath & Beyond already warned that a successful equity raise doesn’t fully eliminate bankruptcy risks. That means investors acquiring additional shares understand they could lose their shirts if the retailer ends up filing a Chapter 11 or 7 petition.
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Take, for example, AMC Entertainment. Covid closures forced the movie theater chain to the brink of bankruptcy. It raise $917 million through an equity and debt financing plan in 2021 in which it issued 164.7 million new shares to secure $506 million along with debt financing. That bought AMC some much needed breathing room. These days, AMC is proposing a reverse stock split to help pay down high debt.
Currently, hardlines analyst Jonathan Matuszewski at Jefferies Equity Research has a “Hold” rating on shares of Bed Bath & Beyond. He noted “likely” near-term instability and said the retailer needs “additional financial engineering” to fund its “repositioning efforts.”
The home goods retailer is expected to report fourth quarter and full year results at the end of April. Last month its preliminary report said that it expects fourth quarter net sales of $1.2 billion, representing a 52 percent plunge from the $2.5 billion in sales it posted in the year-ago period.