Friday's Headlines: Bed Bath & Beyond Eyes Up Bankruptcy
Here were the biggest movers in the MyWallSt shortlist yesterday:
Moving Up ⬆️
Stitch Fix (SFIX) +9.4%
Lovesac (LOVE) +9.3%
Chegg (CHGG) +3.9%
StoneCo (STNE) +2.9%
IMAX (IMAX) +2.2%
Moving Down ⬇️
Cloudflare (NET) -9.6%
Bill.com (BILL) -9.6%
CrowdStrike (CRWD) -9.1%
Datadog (DDOG) -7.9%
Bed Bath & Beyond Eyes Up Bankruptcy 🚨
Bed Bath & Beyond warned investors yesterday that the company is running out of cash and could even consider bankruptcy. The beleaguered home store is anticipating a loss of $386 million in its most recent quarter and is currently struggling to stock its shelves.
The company experienced worse-than-expected sales throughout the holiday season, leading to it issuing a “going concern” warning that it may not be able to pay its expenses like suppliers and leases in the coming quarter. Management is considering several options beyond just bankruptcy, including restructuring, selling off assets, or even raising new capital. The latter, however, would seem unlikely considering the financial state of the business right now.
With $1.2 billion in unsecured debt on the books and a market cap of just $148 million as of yesterday’s close, the outlook is grim for the retailer. The notes on Bed Bath & Beyond’s debt have been trading below par, indicating the distress the company is in. It is reporting on its quarterly results next Tuesday, January 10.
The stock fell 30% yesterday and is down a further 13% in pre-market trading at time of writing.
Constellation Brands Struggles On 🍻
Constellation Brands, the owner of Corona and Modelo, disappointed investors during its earnings on Thursday. Ongoing supply chain costs effectively eliminated growth in Constellation’s lucrative beer category, sending the company’s stock down more than 9%. Without the increasing expense of raw materials, packaging, and logistics, beer sales grew 8% year-over-year.
Worse still, Constellation lowered its expected earnings for the year to between $11 and $11.20 from an initial estimate of $11.20 to $11.60. Much of this correction comes down to the beverage maker’s shrinking operating margin. In 2021 it easily achieved a 41.3% margin — this has shrunk to just 37.5%. Management stated it plans to raise prices to match higher operating costs and make up for supply chain problems.
CEO Bill Newlands stated beyond ongoing issues, the largest American beer importer also noticed short-term headwinds at the end of the quarter likely due to adverse weather and shifting economic conditions in California.
Constellation is the first of the major alcohol companies to report earnings so its misfortune has a knock-on effect on the broader category. Diageo, Boston Beer Co., and Brown-Foreman all underperformed the market on Thursday in response to Constellation’s quarter.
Stitch Fix Announces Layoffs as Founder Returns 😨
Stitch Fix has announced another round of layoffs that will see a 20% reduction in salaried employees. The company’s founder, Katrina Lake, has also resumed her role as CEO on an interim basis.
The fledgling fashion company’s shares rose 9% on Thursday after the announcement. Shares are currently up over 4% in pre-market trading.
Stitch Fix runs a subscription service that delivers boxes of curated clothing to consumers. The company was one of the big winners during the COVID-19 pandemic, but struggled to generate the same demand when lockdown restrictions ceased.
Stitch Fix went public in 2017 amid much hype surrounding the company’s founder, Katrina Lake. At the time, Lake was the youngest female to lead a company public at the age of 34. However, in 2021, Lake announced she would be stepping down from the business and would be succeeded by the company’s president, Elizabeth Spaulding.
Spaulding, a former Bain & Company partner, led the rollout of a direct-to-buy option that seemed to clash with the company’s subscription model. In June last year, the company announced it would be laying off around 15% of its staff. Lake will return to the top job while the search for a new permanent CEO takes place.
“I will be stepping in as interim CEO and leading the search process for our next CEO,” Lake said. “Despite the challenging moment we are in right now, the board and I still deeply believe in the Stitch Fix business, mission and vision.”