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Bed Bath & Beyond Secures $120M Supply Lifeline—Is It Enough?

The beleaguered Bed Bath & Beyond has pulled another Hail Mary to keep it out of bankruptcy—at least, for now.

The home retailer has inked a vendor consignment agreement with ReStore Capital. ReStore, an affiliate of Hilco Global, will purchase up to $120 million on a revolving basis of pre-arranged merchandise from the retailer’s key suppliers to supplement its inventory levels at both Bed Bath & Beyond and BuyBuy Baby. Under a consignment arrangement, suppliers retain ownership of the goods until they are sold.

“We remain relentless in executing plans that can help us overcome near-term operational and financial challenges,” the retailer’s CEO Sue Gove said. “Our new vendor consignment program enables us to increase our inventory position in top items that customers are buying and improve the customer experience.  This capital-light solution can allow us to strengthen merchandise availability and better fulfill demand.”

Given its financial troubles and legal matters, including a lawsuit by its  ex-CEO Mark Tritton alleging failure to pay some of the $6.8 million in severance that the retailer owes him, many in the industry were expecting a possible Chapter 11 filing at the end of this month. That’s when the company is due to file its annual report with the Securities and Exchange Commission, provided it actually makes the filing.

But is this “relentless” focus that Gove refers too enough to keep the retailer out of bankruptcy?

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Bed Bath & Beyond has had difficulties in stocking its shelves over the last few quarters, and things got dire in the fall after some vendors either stopped or restricted shipments. The retailer in January admitted that it can’t pay its debts and it has been streamlining operating costs, including new store closures totaling 237 locations that includes the shut-down of its entire 50-door Harmon chain.

Financials aside, if Bed Bath & Beyond wants to recapture its customer base, it needs to give them a reason to shop at its stores. That’s where having the right inventory, the retailer’s albatross, comes into play.

The third-party vendor agreement is meant to supplement the home retailer’s inventory levels. An added benefit is that it gives suppliers in the program a measure of security knowing they will get paid by Hilco, although it does push up the price of goods charged to the retailer since Hilco is expected to get a percentage for the arrangement. For Bed Bath & Beyond, it needs a good merchandise mix that leans more toward national branded-goods than private label. And so far the lion’s share of its assortment remains private label. A big problem with the consignment program is that it only covers existing vendors dubbed key suppliers. That means the retailer will have to figure out how to convince national vendors it wants to bring onboard that it can both pay its bills and maintain good working relationships.

A bankruptcy could still be on the horizon. Bed Bath & Beyond is now looking to raise $300 million through an equity offering, provided it can persuade investors that has a viable turnaround plan and the know-how to get the retailer back on its feet. Proceeds from the offering, as well as income from sales, are expected to be turned over to the retailer’s lenders to pay down its borrowings so Bed Bath & Beyond can borrow back the amount to fund operations.

Shares of Bed Bath & Beyond are trading in the 31-cent range, giving it a current market capitalization of $124.5 million. It’s a sign for the one-time meme stock that retail investors have been heading for the exit doors. The stock’s listing was removed from the small-cap S&P 600 index last month after falling below the $850 million market cap requirement.

The retailer revealed it is calling for a special meeting of shareholders slated for May 9 to vote on an amendment that would allow the board of directors to execute a reverse stock split “at a ratio in the range of 1-for-10 to 1-for-20,” according to a regulatory filing with the Securities and Exchange Commission on Wednesday.