In January, ahead of its Q3 earnings report, Bed Bath & Beyond warned it could file for bankruptcy protection, citing recurring losses, negative cash flow from operations, and its cash and liquidity projections. But it hasn’t yet, and many observers are wondering why.

The home goods retailer has made various financial and operational moves this year designed to stave off a Chapter 11 filing. In February the company secured about $225 million through a stock offering, backed by hedge fund Hudson Bay Capital Management, with the goal of earning an additional $800 million in stock-related proceeds over time. In late March, the retailer proposed a reverse stock split. A few days later, it announced another share offering to raise $300 million and again warned it may need to file for bankruptcy.

To help get back on track, the retailer has slated hundreds of stores and its entire Canadian business for closure. Right-sizing its operations would be far easier within a bankruptcy process, experts say.

Why does the retailer seem to be working so assiduously to avoid a filing? The company didn’t immediately respond to this question, but here are some possibilities.

Management is being prudent

Chapter 11 carries many advantages, including an “automatic stay,” where any lawsuits or collections require approval from the bankruptcy court, an ability to reject leases or other contracts detrimental to the business, and an ability to recover certain funds the company lost before it filed. But it’s also an expensive and arduous process, according to Nancy Rapoport, a professor at the University of Nevada, Las Vegas’ business and law schools.

The company’s leadership may also worry that it will be difficult to fix its issues within bankruptcy, and that it may not last in Chapter 11, according to Laura Coordes, associate dean at Arizona State University’s Sandra Day O'Connor College of Law.

“Simply put, Chapter 11 may not fix the company’s underlying problems — it’s still going to need liquidity, it’s still going to need interest from buyers or lenders — and if it doesn’t have those things, it might not last terribly long in Chapter 11 and could be forced to liquidate,” Coordes said by email. “My understanding is that vendors who sell to the company are concerned, and some are pulling out. To the extent that signals long-term operational challenges, it’s not clear that Chapter 11 will be a great fix.”

Management is being imprudent

But others question the delay, in light of its moves so far this year.

The company may be making last-minute “Hail Mary” plays despite bank restructuring advice in favor of Chapter 11, according to John Sparacino, a principal in law firm McKool Smith’s bankruptcy practice.

“One of the biggest challenges for us restructuring professionals that have ever done company-side work is convincing management and a board that there is a real need for Chapter 11 relief,” he said by phone. “The steps they're taking just strike me as wrong. It just seems to be further kicking the can down the road to an inevitable filing where all of this goes to zero.”

In the meantime, even without a filing, “bankruptcy” and “Bed Bath & Beyond” continue to be linked in the minds of investors, vendors and customers. That will increasingly lead all three of those stakeholders to shy away from the retailer, according to S. Todd Brown, professor at the University of Buffalo School of Law.

“The risk in stretching out this aura of bankruptcy around the company is that even the high performing stores lose inventory, they lose sales, they lose critical personnel, and then even their better stores start to struggle,” he said by phone. “It feels like they've had their names attached to a pending bankruptcy for months now. And, you know, the longer that happens the less comfortable people are going to be going to shop there.”

Indeed, suppliers have been on edge, and engaged couples are reportedly dropping the retailer from their registries.

Management and its financiers are hoping for meme stock spikes

In 2021, despite debilitating revenue declines, GameStop issued new shares that allowed it to pay off its debts and stock its war chest for a turnaround. That was after its stock soared early that year, driven by its status as a “meme stock.”

Meme stocks enjoy sudden price spikes that are untethered to a company’s business prospects. Rather, shares go viral as speculators trade on ineffable qualities like nostalgia and cult-like followings. While it would be difficult to make that happen intentionally, Bed Bath & Beyond and Hudson Bay Capital may have been hoping it would, according to Brown.

“For a few months now they've just been buying time for some purpose and that purpose could be that they’re tempted to capitalize on the whole meme stock idea,” he said by phone. 

But neither that nor financial plays like stock splits will ultimately save the company, he warned.

“The problem is that, regardless of what kind of propping up is going on with your stock, whether there are groups out there bidding up your stock, or whether you are doing a reverse stock split to create the appearance that your stock is stronger than it is potentially, you have to actually make money,” Brown said. “And if you don't, then no amount of alchemy is going to save you.”

Management is probably working on it

Moreover, the company may very well be working hard now to prep for a filing, including securing financing, drafting the petition, determining which leases and contracts it wants to keep or shed, and what assets it must recover, Rapoport said by email. The company may also be working to find a buyer, according to Brown.

“The old joke is that, to surgeons, everything can be fixed by an operation, and to Chapter 11 lawyers, everything can be fixed by filing,” Rapoport said. “But it's always good to think about all of the options before making that decision.”

On Wednesday the Wall Street Journal reported that a filing is imminent. The company didn’t immediately respond to requests for confirmation on that.

“I would be really surprised if Bed Bath & Beyond did not already have all of its ducks in a row at this point, where they could file tomorrow if they needed to,” Brown said.