Bed Bath & Beyond could file for bankruptcy ‘as early as this weekend’: MACCO CEO
MACCO CEO Drew McManigle joins Yahoo Finance Live to weigh in on Bed Bath & Beyond and why the retailer is likely doomed sooner than later.
SEANA SMITH: A dire warning from Bed, Bath & Beyond. Look at shares today, off just about 24%. That happening after the retailer saying that it may go bankrupt. Joining us now is Drew McManigle. He's the Macco CEO. He's worked with hundreds of companies, either in or nearing bankruptcy.
Drew, it's great to have you back on the program. We wanted to invite you back on the show today because we last spoke about four months ago, and you predicted the turnaround plan that Bed, Bath & Beyond laid out at that time wasn't enough. I want to play a quick sound bite from what you had to say then and get your reaction.
DREW MCMANIGLE: You're coming to the party late. I'm not going to be one to be surprised if the Chapter 11 petitions haven't already been drafted and are just waiting for a signature. I'm also not convinced that this $500 million financing is going to be enough cash.
SEANA SMITH: So you nailed it, Drew. The financing certainly was not enough. The cuts that they made did not seem to work out. So what happens now?
DREW MCMANIGLE: Well, I think it's inevitable that they file. I wouldn't be surprised to see them file as early as this weekend. There's no reason not to. I suspect they've been working on their debtor in possession financing. Their sales were off a third. I just don't think there's-- I think it's a fait accompli that they're filing. Quite frankly, I'm surprised, and at Macco Restructuring Group, we would have advised our client to file once we were in trouble.
I mean, they were going to cut-- it was valiant that they tried to enact a turnaround plan. But as I said, they came late to it. And it wasn't deep enough or far enough. As an example, they were going to close 21% of their stores, which just isn't enough. We would have gone in and looked at each and every store. And if it was losing money and if the sales weren't relevant, we would have shut it down. In turnarounds, it's just-- you're just going to break a few eggs, but-- and including the stock price.
But much like an emergency room, if the patient dies, what difference does any of it make? And so the premise of a turnaround is to save the company so it'll have another fight another day. And I don't think Bed, Bath & Beyond is going to.
DAVE BRIGGS: I guess I better run out and get that ironing board soon if you think this weekend is possible. If they'd have filed earlier, Drew, what might they have saved?
DREW MCMANIGLE: Well, a couple of things. First of all, the automatic stay of 362 of the bankruptcy code would have come into play immediately. That prevents vendors from creditors and others from initiating lawsuits, from continuing lawsuits, from trying to collect. It provides you-- it provides a process so that vendors know that you're going to be an ongoing business. One of Bed, Bath & Beyond problems was that their vendor constituency has, as I said before, seen this movie.
So they're worried about getting paid. So consequently, they tighten their credit terms, which means that Bed, Bath & Beyond can't fill its stores with inventory for sale. So the bankruptcy process allows you to remain in business within a process that gives creditors and others some comfort that there's going to be a debtor in possession. It will be somewhat business as usual, as you try to get your business plan turned around.
SEANA SMITH: Drew, when it comes to potentially spinning off parts of its business, seeing what would maybe be attractive to some potential buyers out there, I know you're not an expert on Bed, Bath & Beyond specifically, but you're very familiar with this type of process, those conversations. How do you think they are playing out amongst executives right now?
DREW MCMANIGLE: Well, I think the question is, does a Bed, Bath & Beyond brand have any value? And if so, how much? The Bye Bye Baby brand clearly has value. Their drugstore-- the Harmon drugstore chain has some value. So I think they're probably looking at trying to maximize value, which is what you do in a Chapter 11 such as this. And much like occurred in other retail bankruptcies, you try to maximize that value, see who would want to buy the entire business or parts of the business, and try to tee up those sales through a sale process within the Chapter 11.
DAVE BRIGGS: You say this could be just the tip of the iceberg in terms of bankruptcies. Why do you say that? Who could be next?
DREW MCMANIGLE: Well, I think-- listen, we've seen Toys 'R' US. We've seen Sears. We've seen Penney that's been-- JCPenney's, which has been in a turnaround for some time. There's a recession coming, regardless of what the pundits may say or one side or the other. Consumer confidence, I think, is waning. And if you look at the recent information that came out today, holiday online sales were higher than ever.
I've got to tell you, I put out so many boxes from Amazon and other deliveries over Christmas, I'm surprised my community isn't going to charge me for picking them all up. But there was very little shopping. So I think that that's going to continue. And that's going to affect big box retailers and some of the smaller chains that are still going to continue to have problems.
And that's where when you're doing a turnaround to work out, if we get called, then you're going to have to very, very quickly make a determination of what's working, what's not, and where, and how you can conserve cash because cash is the lifeblood of these businesses. If you run out of cash, you're out of business. And that's one of the things that has affected Bed, Bath & Beyond.
DAVE BRIGGS: Well, let's hope some others do it right and we don't lose more ahead in '23. Drew McManigle, good to see you. Thank you.