Bed Bath & Beyond is suffering from a huge debt load.Credit…John Taggart for The New York Times
Bed Bath & Beyond’s time is running out
In 2021, Bed Bath & Beyond joined the list of meme stocks whose share prices surged amid sudden interest from online retail investors. But the home furnishings retailer’s future is uncertain after a disappointing holiday sales season failed to help solve its worsening financial woes.
Bed Bath & Beyond is now weighing a variety of options, including raising cash by selling parts of its business or all of the company. But if those efforts fail, its only option may be to file for bankruptcy.
The retailer’s holiday season was exceedingly grim. Bed Bath & Beyond forecast a potential $386 million loss for its latest quarter, down 40 percent from the same time in 2021. The company also had a negative cash flow of $340 million last year and paid $65 million in interest. As of March, it had about $3 billion in debt. While the retailer is working on an ambitious turnaround plan, that requires time and money it may not have.
Raising money is getting harder for troubled companies. Thanks to rising interest rates, new loans are much more expensive, while institutional investors who were happy to buy the debt of riskier businesses during boom times are now picking only safe bets. Meanwhile, volatile stock markets have made issuing new equity difficult for many companies, an especially big problem for meme-stock companies that relied heavily on issuing new shares to finance their growth.
All of this is bad news for Bed Bath & Beyond:
The retailer took out a $375 million loan from Sixth Street in August, and it’s unclear whether the investment firm is interested in lending more.
The company had also tried to exchange some of its bonds for new equity, but that offer expired on Wednesday. That the retailer still has a huge debt load suggests that its creditors favor owning the company’s bonds to have a higher priority in a Chapter 11 case than if they had swapped their holdings for equity.
Bed Bath & Beyond isn’t the only meme-stock name in trouble. The movie theater chain AMC has seen its shares tumble 85 percent over the past year, while the video game retailer GameStop has fallen 50 percent.
The companies all face similar problems, according to David Trainer, the C.E.O. of the investment research firm New Constructs: “They don’t have enough pretax profit to pay their interest payments,” he told DealBook, adding that they have negative cash flow and no more than 24 months of cash-flow runway.
HERE’S WHAT’S HAPPENING
Representative Kevin McCarthy redoubles his efforts to win over right-wing holdouts. As the Republican leader lost an 11th ballot for speaker yesterday, he negotiated with dissidents on a potential deal that could drastically weaken his authority if he’s eventually elected. There may be movement toward an agreement, but it’s unclear whether or when one can be reached.
U.S. jobs data may show slowing growth. The Bureau of Labor Statistics will release the December employment data at 8:30 a.m. Eastern. Economists forecast that roughly 200,000 jobs were added last month, keeping the unemployment rate at 3.7 percent. Investors and the Fed will be watching average hourly earnings growth, an inflationary indicator.
Tesla cuts prices in China for a second time in less than three months. The move came after the carmaker reported a sharp fall in sales in its second-biggest market last month, behind only the United States, as it faces tougher competition from Chinese rivals like BYD. Tesla also lowered some prices in Australia, Japan and South Korea.
Samsung profits fall to an eight-year low. The electronics giant said its operating profit fell 69 percent in its most recent quarter, battered by curbed demand for semiconductors and other tech goods like smartphones and TVs. Samsung also suffered from a glut in the computer chip market, particularly memory chips, which analysts say will probably persist.
The N.F.L. cancels the game postponed after Damar Hamlin collapsed. The matchup between the Buffalo Bills and the Cincinnati Bengals that was suspended on Monday won’t resume; the league will instead rejigger its playoffs. More important, Hamlin is now awake, able to move his hands and feet and can write, his doctors said.
The F.T.C.’s new war on noncompetes
Since becoming chair of the F.T.C., Lina Khan has embarked on a series of aggressive moves to expand federal competition oversight, including by suing to block prominent mergers.
But Ms. Khan is taking on one of her most ambitious challenges yet: calling for an end to noncompete agreements that limit workers’ ability to join rival companies or start a competitive businesses. The effort could lift workers’ wages, Ms. Khan argues, but opponents say that the agency is overreaching.
The use of noncompetes has swelled over the years. Often regarded as more commonly applying to highly paid workers like software engineers, the contract provisions appear to affect up to 45 percent of private sector workers, including sandwich makers, hairstylists and interns.
The F.T.C. and supporters of its effort say such clauses limit workers’ pay because they prevent people from switching jobs and make hiring more costly for employers who have to figure out whom they can and can’t hire. Banning them, the agency contends, could lift wages by nearly $300 billion a year; some academic research shows that wages have risen in states that have limited their use.
But defenders of noncompetes argue that they make employers more likely to invest in worker training and share sensitive information. They also contend that workers could turn down jobs that require noncompetes or ask for higher pay in return.
Expect a battle over the F.T.C.’s jurisdiction. Ms. Khan — who isn’t afraid of picking fights she may lose if they lead to expansions of regulatory power — told reporters that federal law empowers the agency to prohibit unfair methods of competition. (At least one Republican commissioner at the F.T.C., however, appears to favor a narrower approach.)
Corporate trade groups argue that the legal grounds for such a rule are questionable. “Congress has never delegated the F.T.C. anything close to the authority it would need to promulgate such a competition rule,” a top official at the U.S. Chamber of Commerce said yesterday. Legal experts expect lawsuits to challenge any final rule that’s approved.
A widening crisis in crypto
The fallout from the collapse of FTX is expanding as a growing number of crypto businesses face regulatory scrutiny or report that they’re struggling financially. Here’s a roundup of the latest news:
Silvergate’s shares plunged after a run on the bank. The crypto-focused bank’s stock fell nearly 43 percent yesterday after disclosing $8.1 billion in deposit withdrawals last quarter, forcing it to sell assets at a loss. It also wrote down $196 million spent buying technology from Diem Group, the blockchain payments project created by Facebook, and halted plans to release its own digital currency.
A founder of Celsius is accused of defrauding investors. New York’s attorney general, Letitia James, sued Alex Mashinsky, the failed crypto lender’s former C.E.O., accusing him of trying to defraud hundreds of thousands of investors by falsely claiming that his company’s platform was as safe as a traditional bank. Celsius filed for bankruptcy over the summer, leaving its customers with billions of dollars in lost deposits; the company said Mr. Mashinsky is no longer involved in its management.
Genesis laid off about a third of its workers and is contemplating bankruptcy. The embattled brokerage took steep losses from loans it made to Sam Bankman-Fried’s Alameda Research and the hedge fund Three Arrows Capital. Meanwhile, its parent company, Digital Currency Group, is trying to raise capital to pay back creditors, and its founder, Barry Silbert, is also feuding publicly with the crypto exchange Gemini.
The layoff contagion
Tech giants are cutting their workforces, and Wall Street banks are preparing to lay off thousands in the coming weeks. The companies blame overhiring during the pandemic, economic headwinds and the end of a deal-making and fund-raising boom.
Jeffrey Pfeffer, a professor of organizational behavior at the Stanford Graduate School of Business, has another theory: copycat behavior. “Why would you expect, in a world in which we know from a ton of research for a variety of behaviors that that behavior is imitated, that this is the one behavior that would not be imitated and socially influenced?” he told DealBook.
Layoffs are expensive, Pfeffer said. Decades of research also show that layoffs aren’t always effective. But Mr. Pfeffer says companies imitate what their peers are doing rather than making evidence-based decisions. This is happening in the tech sector, he adds, where companies are insisting they need to cut costs despite having a lot of money.
If companies cut staff — say, because of a dip in deal flow or advertising revenue — they’ll most likely have to make hefty severance payments. But they will also eventually have to hire again, spending on recruiting fees, hiring bonuses and onboarding costs. And they often employ laid-off workers as contractors as well.
When companies in a sector carry out layoffs and then go on hiring sprees in sync, recruitment becomes more competitive, too. “It’s like buying high and selling low, which never struck me as a smart thing to do,” Mr. Pfeffer said.
And downsizing doesn’t necessarily bolster the bottom line. A 2015 analysis of 55 studies on how layoffs affect financial performance found that “downsizing often does not yield anticipated beneﬁts and that there is limited consensus among researchers on whether employee downsizing creates value.”
THE SPEED READ
The creator of ChatGPT, the popular A.I. chatbot, is reportedly in talks to sell existing shares at a valuation of $29 billion. (WSJ)
Vince McMahon is trying to return to World Wrestling Entertainment and start a sale of the pro wrestling franchise. (WSJ)
First Abu Dhabi Bank acknowledged that it had weighed a takeover bid for Standard Chartered of Britain, but said that it was no longer interested in a deal. (FT)
Microsoft dropped a claim from its response to the F.T.C.’s challenge of its $69 billion takeover of Activision Blizzard that the agency’s very structure was unconstitutional. (Axios)
“Facebook Wanted Out of Politics. It Was Messier Than Anyone Expected.” (WSJ)
Jeremy Adler, a top aide to former Representative Liz Cheney, has joined Upland Workshop, a communications firm run by the LeBron James adviser Adam Mendelsohn. (Axios)
Best of the rest
Taiwan is reportedly seeking investors to help create its own satellite communications network as it prepares against a potential attack by China. (FT)
Citadel, Ken Griffin’s enormous financial empire, is said to have reported record revenues in its hedge fund and electronic market-making operations. (WSJ)
An anonymous hacker publicly posted a database that purportedly contains information on more than 230 million Twitter users, including user names and email addresses. (Bloomberg)
India is moving to allow Western universities like Oxford, Stanford and Yale to open campuses there. (Bloomberg)
We’d like your feedback! Please email thoughts and suggestions to email@example.com.