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MarketWatch First Take: Other businesses will feel the impact of Bed Bath & Beyond store closures, says bankruptcy expert

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Bed Bath & Beyond Inc. announced the closure of almost 130 stores this week as the troubled home goods retailer attempts to resolve its financial woes. 

Howard Ehrenberg, bankruptcy and reorganization practice partner at law firm Greenspoon Marder told MarketWatch that the ripple effect of the closures could be felt by other businesses. “These are large square foot stores and that will have an effect on the landlords,” he said. “If they are standalone stores, there’s unlikely to be a replacement tenant … the building may need to be repurposed, which is an expensive proposition.”

“If they are in malls, that will affect the traffic going to the mall and the other retailers,” added Ehrenberg, who is not involved in Bed Bath & Beyond’s
BBBY,
+64.22%

efforts to resolve its financial problems.

See Now: As specter of bankruptcy looms over Bed Bath & Beyond, what’s next for the troubled retailer?

The company announced the closures, along with third-quarter results that missed analysts’ top- and bottom-line estimates — just days after it said it may need to declare bankruptcy.

The stores are in a number of states across the U.S. and will be closing in the coming weeks, according to Bed Bath & Beyond.

As of Nov. 22, 2022, the company had a total of 949 stores, including 762 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 137 buybuy BABY stores and 50 stores under the names Harmon, Harmon Face Values, or Face Values. The company said it closed six Bed Bath & Beyond stores during the third quarter.

Analysts see the specter of bankruptcy looming large over the sometime meme stock darling, which has total liquidity of just $0.5 billion. Time is running out for Bed Bath & Beyond to generate positive cash flow, according to Wedbush analyst Seth Basham. “We now forecast the company running out of liquidity in in 2023, making a restructuring scenario in bankruptcy in the coming weeks far more likely,” he wrote.

Also read: Bed Bath & Beyond CEO says troubled retailer considering ‘all strategic alternatives’

A bankruptcy filing would enable the company to more easily restructure its debt as well as cancel leases on unprofitable stores, removing a significant cash burden, according to Basham. Wedbush lowered its Bed Bath & Beyond price target to $1 from $5 on Wednesday and maintained its underperform rating for the company.

Despite the retailer’s problems, Bed Bath & Beyond’s stock ended Tuesday’s session up 19.4% and climbed 55.8% on Wednesday, outpacing the S&P 500 Index’s
SPX,
+1.02%

gain of 0.9%.

“A well-known investing maxim is that the market is irrational in the short term but rational in the long term,” wrote Siddharth Singhai, chief investment officer of Ironhold Capital, in a note on Tuesday. Many investors have already learned this the hard way through Bed Bath & Beyond, he added.

See Now: Bed Bath & Beyond’s Q3 earnings fall below estimates as loss widens and same-store sales fell 32%

While Bed Bath & Beyond was once a household name for the typical American consumer, the company’s fundamentals have worsened over the last five years, according to Singhai. “Still, when the stock price rallied temporarily from $4 to $23 on 17 August 2022, many disregarded the fundamental business performance in favor of short-term excitement,” he wrote. “The result was a fiasco.”

Since August, Bed Bath & Beyond’s stock tumbled to hit a 52-week low of $1.27 on Jan. 6, 2023 and, even after its rally this week, was trading at just over $3 on Wednesday.

“The stock serves as a timely reminder of how it is never a good idea to invest on short-term trends, as the market is always fair over the long run and the fundamental value of a business is fully reflected in its market valueover the long run,” Singhai wrote.

See Now: Bed Bath & Beyond bankruptcy warning marks latest chapter in troubled retailer’s downward spiral

Of nine analysts surveyed by FactSet, three have a hold rating and six have an underweight or sell rating for Bed Bath & Beyond.

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