By James Rogers
Shares of troubled retailer and meme stock darling Bed Bath & Beyond Inc. were hit hard Thursday after GameStop Corp. Chairman Ryan Cohen disclosed he is selling a large stake in the company.
Bed Bath & Beyond Inc. shares have skyrocketed recently, apparently driven by Wall Street Bets crowd on Reddit, the same noisy corner of the online forum that turned AMC Entertainment Holdings Inc. /zigman2/quotes/200235402/composite AMC +0.23% and GameStop Corp. /zigman2/quotes/203755179/composite GME +0.56% into meme stock phenomena.
Despite Bed Bath & Beyond’s inventory struggles and dwindling sales, the buying spree has driven the retailer’s stock is up 198% in the past month.
Bed Bath & Beyond shares pulled back on Thursday, however, after Cohen’s RC Ventures announced in a filing with the Securities and Exchange Commission and in a Form 144 filing, plans to sell its stake in Bed Bath & Beyond. The stake comes to nearly 7.8 million shares owned, and call options that require RC to register almost 9.5 million shares for sale, or approximately 11.8% of the company’s roughly 80 million outstanding shares.
RC Ventures bought the stake back in March .
Also read: Bed Bath & Beyond says has been ‘working expeditiously’ for weeks to strengthen balance sheet .
Bed Bath & Beyond’s stock tumbled 22.8% in morning trading Thursday, putting them in danger of snapping a six-day win streak, and to suffer only the second loss in 17 sessions.
In a filing with the SEC Thursday in response to media inquiries, Bed Bath & Beyond said it has been “ working expeditiously ” for the past few weeks with external financial advisers and lenders on bolstering its balance sheet. The company said it will provide additional details in an update at the end of August.
“We are continuing to execute on our priorities to enhance liquidity, make strategic changes and improve operations to win back customers, and drive cost efficiencies; all to restore our company to its heritage as the best destination for the home, for all stakeholders,” Bed Bath & Beyond said in its filing.
The home goods retailer said it was pleased to have reached a “constructive agreement” with RC Ventures in March.
Separately, Bed Bath & Beyond was downgraded to underperform from neutral at Wedbush on Thursday.
Bed Bath & Beyond shares continue to skyrocket; ‘This isn’t about rationality’
“Cohen’s activist campaign succeeded in obtaining two permanent board seats, and the company has sought to address several issues highlighted by RC, including a reassessment of its owned brand strategy, inventory mix, and management structure,” wrote Wedbush analyst Seth Basham, in a note. “More pressing, however, is BBBY’s cash burn and the prospects for further financing needed to shore up its balance sheet and rebuild supplier confidence.”
“Free cash flow (FCF) was a whopping -$488m in F1Q, and BBBY ended the quarter with only $108m in cash even after drawing $200m on its asset-based credit facility (ABL),” he added.
Wedbush maintained its $5 price target for Bed Bath & Beyond.
KeyBanc Capital Markets also highlighted the difficulties faced by the retailer.
“From a fundamental standpoint, we believe trends at BBBY remain challenged,” wrote analyst Bradley Thomas. “We continue to forecast significantly negative EBITDA [earnings before, interest, taxes, depreciation and amortization], EPS, and FCF for BBBY in 2022,” he added.
KeyBanc Capital Markets maintained its $2 price target and underweight rating for the retailer.
Wells Fargo reiterated its $3 price target and underweight rating in a note released on Thursday. “Last night, RC Ventures (BBBY’s 3rd largest shareholder) filed to sell 9.5M shares, and coupled with recent insider/CFO selling and yet another unfathomable ‘meme squeeze’ (which still presents risk on the short side), we believe the writing is on the wall that BBBY shares have again decoupled from economic reality,” wrote Wells Fargo analyst Zachary Fadem.
Of 18 analysts surveyed by FactSet, one has a buy rating on Bed Bath & Beyond, five have a hold rating and 12 have an underweight or sell rating.
Bed Bath & Beyond shares have gained 18.7% this year, compared with the S&P 500 index’s /zigman2/quotes/210599714/realtime SPX -0.17% decline of 10.3%.