Does Bed Bath & Beyond (BBBY) store a Jenga game that is about to end?
Jenga players “take turns removing a block from a tower and balancing it on top, creating a taller and increasingly unstable structure as the game progresses…The game ends when the tower falls – completely or if a block falls off the tower,” according to Jenga.com.
What does this have to do with BBBY? On September 4, the New York City Medical Examiner’s Office said it had determined that on September 2, BBBY’s chief financial officer, Gustavo Arnal – who resided in “a skyscraper in Manhattan known as Jenga Tower “, had died by suicide, according to the the wall street journal.
The company said it was shocked by this tragedy. “All [BBBY] The organization is deeply saddened by this shocking loss,” according to the company, which “did not name a successor and declined to comment further, citing the privacy of Mr. Arnal’s family,” the Journal noted.
This tragedy could also cause pain for BBBY shareholders who have been whipped over the past few months.
On July 22, I saw four reasons why its stock could fall further – including falling sales, dwindling cash reserves and the firing of its CEO, Mark Tritton – who had presided over a disastrous product strategy. house brand.
Since then, new reasons have emerged to question the future of BBBY – in which short-term interest has risen from 32.4% to 40.4%. Here are three:
- Loss of a key investor. On August 18, Ryan Cohen, an activist investor popular with the meme-stock crowd, sold his shares in the days of the retailer after announcing ownership of out-of-the-money call options,
- Dilutive restructuring plan. On August 31, BBBY announced a restructuring plan that sent its stock plummeting, and
- Shareholder lawsuit alleging a “pump and dump” scheme. On August 23, Arnal and Cohen were named plaintiffs in a shareholder lawsuit alleging that “the couple sought to inflate the company’s stock price before Mr. Cohen completed his stock sale. “. Last week, BBBY said he “believes the lawsuit is without merit,” the Journal noted.
(I have no financial interest in any securities mentioned in this post).
Ryan Cohen sells his BBBY holdings
What a short and strange trip it has been for Cohen and BBBY!
In March, Cohen — an activist investor who is chairman of GameStop and co-founder of Chewy — announced a large stake in BBBY which he suddenly dumped in August. This is one of the most unsettling Jenga blocks removed from BBBY.
Specifically, in March, his RC Ventures announced that he owned 9.8% of BBBY’s common stock, at which time Cohen wrote a letter to his board in which he “[advised] several necessary and significant operational changes – including a possible full sale of the company,” according to GoBankingRates.
Last month, Cohen sold his BBBY common stock at what looks like an impressive profit that CNBC estimated at $59 million — spurred on by a big call option bet — which gives the owner the right, but not obligation, to acquire shares at a specified price in the future.
First, Cohen announced that he had made a large purchase of these call options with a strike price well above the current market value of the stock – signaling that he expected BBBY stock soars.
On August 15, 2022, RC Ventures “announced in an SEC filing purchases of over one million January 2023 call options with strike prices at $60, $75 and $80 – significantly higher than Bed Bath & Beyond shares were trading,” according to a BusinessWire announcement of a lawsuit filed by Bragar Eagel & Squire. This news sent the stock soaring 29% on August 16 “on extremely large trading volume”.
The title then began a painful plunge. That’s because on August 16 and 17, he sold BBBY common stock at “a price range between $18.68 per share and $29.22” that RC Ventures had bought at an average price of 15, $34 per share.
It was not until the following day, August 18, that RC Holdings announced in an SEC filing that it had sold all of its common stock. On that day, BBBY stock fell 40.5% – dropping about 20% more on the 19th – to $11.03. As of Sept. 5, its shares had fallen another 22% to $8.59, according to CNBC.
Poor performance and BBBY restructuring plan
When BBBY last announced its results in June, its sales were down and its cash position was weak. Unfortunately, the restructuring plan announced last month did not inspire investors.
In the quarter ending May, revenue of $1.46 billion fell 25% from a year earlier, or $50 million below the consensus estimate. Its adjusted net loss was $2.83 per share, more than double the estimated loss of $1.39, according to TipRanks.
BBBY’s cash position was very weak in May and it didn’t take much imagination to watch it run out. At the end of May 2022, its balance sheet was just $108 million in cash, down 75% from the previous quarter. During that quarter, its free cash flow was negative $488 million.
On August 31, BBBY announced disappointing preliminary results for the quarter ending in August, a negative growth forecast and a severe cost-cutting plan.
BBBY’s preliminary sales results of $1.45 billion for its fiscal second quarter were about 3.5% below expectations of $1.5 billion, 25% lower than a year earlier. The company also forecast negative free cash flow for the quarter of -$325 million and guided investors to expect a 20% decline in same-store sales for 2022, according to TipRanks.
BBBY also announced an investment plan that included selling stocks, borrowing money and cutting costs. Specifically, the company said it negotiated more than $500 million in debt and plans to sell up to 12 million shares to pay off $1.4 billion in long-term debt. Additionally, BBBY intends to cut costs by $250 million by closing 150 stores and laying off 20% of its staff.
Investors sold on the news – sending its shares down about 20% for the day. TipRanks reported that analysts placed “a strong consensus sell rating based on zero buy, one hold rating, and 12 sell ratings” with a fair value for BBBY stock price of $3.54.
BBBY shareholder lawsuit
On August 31, Arnal told investors that BBBY had not yet finalized its accounts for the quarter ending August. After reading the allegations in the lawsuit — which, according to the Journal, BBBY declined to comment on Sept. 4 — I wonder if this accounting issue is the block causing BBBY’s Jenga Tower to collapse.
The lawsuit — in which lead plaintiff Pengcheng Si and others are seeking $1.2 billion in damages — alleges that Cohen and Arnal “artificially inflated the company’s stock price in a ‘pumping and dumping’ to sell its shares at a higher price,” according to DailyMail.com.
Filed in the United States District Court for the District of Columbia on August 23, the suit claims that “Cohen had approached Arnal [in March 2022] about a plan to control Bed Bath and Beyond’s actions so they can both profit.
The lawsuit claims that Arnal “agreed to regulate all insider selling by BBBY officers and directors to ensure that the market would not be flooded with a large number of BBBY shares at any given time.”
The lawsuit also alleges that Arnal made “materially misleading statements to investors regarding the company’s strategic plans, BBBY’s financial condition…and reports of stock holdings and sales” to help boost the stock price. shares, DailyMail noted.
The Journal reported that a prearranged plan laid out in April 2022 sold around 55,000 shares of Arnal on August 16 and 17 for around $1.4 million. He still owned 255,000 BBBY shares, the Journal notes.
If you or someone you know is suffering from depression or has thought about harming or killing yourself, seek help. The national lifeline for suicide prevention (1-800-273-8255) provides free, confidential 24/7 support for people in distress, as well as best practices for professionals and resources to help with prevention and crisis situations . Help is also available through the Crisis text line — just text “HOME” to 741741