- Bed Bath & Beyond may file for Chapter 11 bankruptcy this week.
- The company has failed to find a buyer and closed stores poorly.
- No matter what happens, this market faces some volatility.
Bed Bath & Beyond (NASDAQ:) shares are plummeting and could fall soon. Attempts to stem bankruptcy, including finding potential buyers, have failed. The latest word in the streets is that a Chapter 11 bankruptcy filing could be filed as early as this week.
The company is reportedly preparing to close 87 more stores on top of the 150 it has already closed, so it looks like there isn’t much hope.
What is Chapter 11? According to US law, Chapter 11 is a restructuring bankruptcy that protects a company from creditors while creating a new business plan. If successful, the new Bed Bath & Beyond will at least emerge as a stronger company with a path to profitability. Otherwise, Bed Bath & Beyond could face a complete liquidation of its assets, which could have far-reaching implications for the rest of the retail sector.
The winner when Bed Bath & Beyond went out of business
The question of who will win when Bed Bath & Beyond goes out of business is difficult to answer, as it is highly questionable which businesses will remain. It faces increasing competition from box retailers, which is why it is being forced out of business. Luckily, annual revenue is still hovering in the $5 billion range for him, so he’ll have to split the pie.
At face value, Walmart and Target are the most likely to receive new business, but there are others. In the case of Walmart, a major move is unlikely, as absorbing BBBY’s entire business would account for less than 1% of growth. On the other hand, if Target absorbed the entire business, it would likely see growth of nearly 5%, so it would be more likely to lean towards home furnishings and kitchen appliances.
Wedbush analyst Seth Basham sees Wayfair Inc (NYSE:) as a potential beneficiary of the BBBY business. In his view, the home furnishings industry will decline by about 3.0% in 2023, but not Wayfair. He predicts that in a growth-free environment he will grow as Wayfair gains market share, which could be boosted by his BBBY business.
That’s why he’s bought Wayfair stock, but the outlook is risky. The risk is that Wayfair’s products may be at a different level than Bed Bath & Beyond’s core customers.
Off-price retail will be the biggest winner
The biggest winners in the Bed Bath & Beyond debacle are discount retailers, and for three reasons. First, these companies can get large amounts of inventory at the lowest prices. This is an excellent stock. Bed Bath & Beyond may no longer be a premier retailer, but the brands under its roof are.
Second, it actually drives more traffic to the home goods section. How much depends on location and effort, but some things are certain.
The third is labor. The influx of employees looking for jobs in retail will help those still in business flesh out their workforce, and they desperately need it. Companies (NYSE:), Kohl’s Corporation (NYSE:), Ollie’s Bargain Outlets (NASDAQ:) and Ross Stores (NASDAQ:).
Technical Outlook: Volatility is on the rise
No matter what happens, BBBY market volatility is guaranteed. Not only is institutional involvement still high at 64%, but short selling is also very high at a similar 65%. From this perspective, good news can cause short selling, while bad news can send stocks to $0 under the pressure of short selling and institutional outflows. It is not a stock that can
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