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Struggling retailer Bed Bath & Beyond (NASDAQ:BBBY) appears to be near death, with a 10-Q signaling insolvency and subsequent reports indicating a lack of interested buyers for its assets.
According to BloombergBed bath and beyond (BBBY) has been unable to find a suitor to avoid bankruptcy, which puts the possibility of a Chapter 11 filing firmly on the table. Amid insolvency issues, shares cratered more than 20% in just a few days.
However, that’s not necessarily bad news for the retail industry as a whole, analysts said. Indeed, a liquidation should help a number of peers and competitors in terms of staff shortages and market share.
Donor Sharing
Wedbush analyst Seth Basham has advised clients that Wayfair (W) could be a big winner in Bed Bath & Beyond’s misfortune.
“We expect total home furnishings industry sales to decline 3% in 2023, but W will increase sales slightly given these factors; if Bed Bath & Beyond (BBBY) goes into liquidation, it could lead to an additional 3% revenue growth for W,” he told clients.
The potential tailwind was a key part of its more bullish outlook on the stock, bumping its rating from Neutral to Outperform. Basham also raised his price target to $60 from $38 previously.
Beyond the home furnishings category, companies like Kohl’s Corporation (KSS) and Target (TGT) are also being targeted by analysts as top beneficiaries. According to Oppenheimer, a complete liquidation of Bed Bath & Beyond (BBBY) stores “could conservatively add 50 to 100 basis points to TGT comps and $0.14 to $0.28 to EPS in the near term.”
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In addition to sales and the potential impact of BPA, staff shortages have hampered the retail sector and pushed up wages. A liquidation could put thousands of retail workers in line for new positions at Target (TGT), Nordstrom (JWN), Kohl’s (KSS), Macy’s (M) or any of the myriad companies that have faces headwinds on labor costs.
Over the past week, Walmart (WMT) announced an increase to its national minimum wage in a bid to woo understaffed store workers. Meanwhile, Amazon has faced emboldened pressure to unionize given workers’ stronger bargaining position at the moment.
In short, a sudden influx of workers competing for jobs could be another tailwind for the broader retail sector, both for those looking to hire and for those battling wage inflation.
Bath salt grains
While the comments on the stock donation and endowment assistance are compelling, there remains a modicum of skepticism about the narrative.
Namely, questions remain as to how much market share the retailer is left to give away given the position they find themselves in. Additionally, the company only reported 32,000 employees in its 2021 annual filing. Presumably, amid major restructuring and moves to stabilize the business, that number is much lower than it is now.
Additionally, The New York Times reported recently that many retailers are considering or have already authorized layoffs to tighten their belts at present rather than welcome a hiring spree. Stitch Fix (SFIX), which cut its salaried workforce by 20%, and Saks 5th Avenue, which cut its workforce by the hundreds, were cited as key examples. Amazon (AMZN) layoffs also targeted, along with human resources and other white-collar positions, its retail business.
Finally, the liquidation will also likely have an impact on prices in the retail sector. As clearance promotions are potentially passed on by Bed Bath & Beyond, an industry already struggling with margin and inventory issues would face another headache.
Learn more about the asset sale difficulties reported by Bed Bath & Beyond.