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Bed Bath & Beyond Has Everything on the Line

While Bed Bath & Beyond got a last-minute infusion of cash this week that saved it from bankruptcy—at least for the time being—the company admitted today in a Securities Exchange Commission (SEC) filing that it still may end up filing Chapter 11.

The prospectus amendment filed with the SEC this afternoon said the retailer’s stock transactions with Hudson Bay Capital Management are structured to be processed through multiple closings or tranches.

“We need the proceeds from the transactions to pay our outstanding obligations under our credit facilities and senior notes and to operate our business,” Bed Bath & Beyond said in the filing. “And we expect that we will likely file for bankruptcy protection if the transactions are not consummated.”

In the filing, the retailer also admitted the risk factors for investors, pointing to its loan defaults and saying, “investing in our securities involves a high degree of risk.”

Earlier this week, Bed Bath & Beyond announced a 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. The next day, hedge fund Hudson Bay Capital Management stepped up to purchase those shares.

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“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.

This news comes as no surprise to analysts at UBS’ Global Research and Evidence Lab, who released a report this week saying that while Bed Bath & Beyond is poised to receive potentially more than $1 billion as part of its equity offering after it defaulted on a massive payment, the retailer still has a rocky road ahead.

“The company has several challenges, and its future outlook remains uncertain in our view,” the report said. “Therefore, we continue to see downside risk on its stock.”

The company also announced that it would trim its stores to just 360 Bed Bath & Beyond locations and 120 BuyBuy Baby stores, closing around 400 locations. UBS analysts said this will likely increase the retailer’s digital penetration to well beyond 50 percent, which actually may not be a good thing.

“While occupancy cost savings should help, channel mix is likely to act as a significant drag as digital sales have lower margins than store sales,” the report said.

And while closing stores will reduce operating costs, UBS said it also will result in a reduction of sales, with the majority of the closed stores’ share going to other retailers such as Target and Walmart.

Going forward, UBS analysts said Bed Bath & Beyond’s comp sales are projected to continue to decline by double digits. And if the company doesn’t figure out a way to reverse this track, it will continue to burn cash and find itself in the same position it found itself in prior to this latest money infusion.

“While the company has taken the right steps to avoid a bankruptcy filing for now, we believe its path from here remains highly uncertain,” the analysts said.