Bed Bath & Beyond Inc. executives told suppliers on a video conference call on Thursday that the company would pay them in advance for their merchandise or upon delivery, part of the retailer’s effort to win over skittish manufacturers and put the troubled business back on track.
(Bloomberg) — Bed Bath & Beyond Inc. executives told suppliers on a video conference call on Thursday that the company would pay them in advance for their merchandise or upon delivery, part of the retailer’s effort to win over skittish manufacturers and put the troubled business back on track.
Executives told suppliers that they intend to use funds from a recent equity offering to get more products into the company’s stores. Shelves have been sparse because Bed Bath & Beyond has struggled to pay manufacturers. But the impact won’t be immediate, interim Chief Financial Officer Holly Etlin told suppliers, according to a partial recording of the video call viewed by Bloomberg News.
The home-goods retailer secured an equity offering last week that will potentially allow it to raise as much as $1 billion over time. “While we think that that will be the necessary funding to fund the turnaround, it isn’t all here right now,” Etlin said. “It came in — a small amount up front – and then $100 million a month over the next few months until we get up to the committed amount.” The equity deal is underpinned by anchor investor Hudson Bay Capital Management, a New York-based hedge fund.
Bed Bath & Beyond is “prepared to pay” cash in advance or on delivery to suppliers to convince them to sell their products to the retailer, Etlin said during the presentation. The shares rose 2.7% at 10:08 a.m. in New York trading, putting the stock on track for its first gain in nine sessions. Bed Bath & Beyond shares have plunged almost 90% in the past 12 months.
Suppliers have been demanding upfront payments for months because they were concerned about not being paid for their goods. But the company, short on cash, hasn’t been able to meet those requests, so many suppliers limited or halted their shipments.
Restoring Trust
“We don’t expect you to come forward immediately, but we hope that we will ultimately restore your trust in us,” said Etlin, a restructuring expert at consulting firm AlixPartners who joined Bed Bath & Beyond last week on a temporary basis.
A Bed Bath & Beyond spokeswoman didn’t respond to requests for comment.
Read more: Bed Bath & Beyond has nothing but itself to blame for downfall
Steve Greenspon, chairman of the International Housewares Association trade group, said vendors are likely to seize on the opportunity to sell to Bed Bath & Beyond, which remains a major retailer in the sector even after years of closing stores, and the pledge to shut even more this year.
“This seems like a win-win for both Bed Bath & Beyond and the vendor community,” he said. “The vendors have an opportunity to sell some of their inventory and get it to Bed Bath & Beyond shoppers without financial risk and Bed Bath & Beyond is able to get great brands on their shelves.” Greenspon is also the chief executive officer of Honey-Can-Do International, which sells home items and other consumer products to retail companies.
Steadier Footing
Still, the move might not be enough to keep the retailer on steadier financial footing. That will depend, in part, on how swiftly suppliers come forward — and how quickly Bed Bath & Beyond can get the merchandise into stores and sold to consumers.
After months of double-digit percentage drops in sales and a shrinking cash pile, the Union, New Jersey-based company was headed toward bankruptcy before the last-minute equity offering. Some suppliers and analysts have said that while the new financing potentially buys Bed Bath & Beyond more time, its business is so broken that it is still likely to seek to restructure.
“Are the orders going to be big enough to actually matter?” Eamon Kelly, an analyst with Edgewater Research, said in an interview. The advanced payments are “certainly good news, that’s what people were looking for,” Kelly said. But it’s unclear how much of the equity funding will be channeled to rebuild inventory — and how quickly. “How much money do they actually have to spend?” Kelly said.
Some suppliers have also said they’re likely to avoid working with Bed Bath & Beyond because it still owes them a lot of money for past shipments.
–With assistance from Jonathan Roeder.
(Updates with share performance in fourth paragraph.)
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