Buybuy Baby Draws Suitors Amid Bed Bath & Beyond's Collapse

The Decline Of Bed Bath & Beyond Inc. BBBY -18.11%
One Of the Company's Strongest Businesses Is the Buybuy Baby Chain Of Stores, Which Sell Strollers, Cribs, And Other Infant Gear. This Could Be a Major Source Of Growth For The Company.

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Bed Bath & Beyond, which is preparing for a bankruptcy filing, has been in discussions with private-equity firm Sycamore Partners and another suitor about a deal to sell the baby chain as part of its chapter 11 restructuring, according to people familiar with the matter. The New York Times earlier reported on the discussions.

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Sales at both Bed Bath & Beyond and Buybuy Baby are shrinking, but the baby business is holding up better than the home goods chain. The company is still opening new Buybuy Baby stores, even as it closes 150 of its namesake locations and moves to preserve cash. As of February 2022, the company had about 770 Bed Bath & Beyond stores and about 130 Buybuy Baby locations. The Buybuy Baby business has generated more interest than the core Bed Bath & Beyond business, according to sources. Some potential suitors have expressed interest in keeping the Buybuy Baby locations intact, while determining another path forward for Bed Bath & Beyond. It’s unclear what that could look like.

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The board of Bed Bath & Beyond explored a potential sale of Buybuy Baby last year under pressure from activist investor Ryan Cohen. However, they decided not to sell the business because the separation would be complicated and costly. The new leadership team also needs to nail down a strategy for the business before marketing it to potential bidders.

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The company's desired price in 2022 compared to today is unclear. Last year, the baby chain had an estimated $1.2 billion in sales and is likely worth $300 million to $400 million, according to Cristina Fernandez, an analyst with Telsey Advisory Group. The company has been struggling financially, and this month it warned that it might not be able to stay in business. It has laid off some workers and plans to lay off more. For the nine months ended Nov. 26, the company had a net loss of $1.12 billion on revenue of $4.16 billion. It doesn’t break out profit or revenue for the Buybuy Baby business.

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Comparable-store sales at BuyBuy Baby fell sharply in the latest quarter compared with a year ago, while Bed Bath & Beyond saw a smaller decline.
Ms. Fernandez said the baby chain has fared better because it still sells mostly branded goods like Gerber food and Graco strollers. The shift to private-label goods has not affected the chain as much as it has Bed Bath & Beyond.

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Sycamore Partners is a private equity firm that specializes in distressed retail chains. In 2017, the firm led the leveraged buyout of Staples for $6.9 billion. Last year, Sycamore made an unsuccessful bid for Kohl's Corp. The firm has also acquired mall-based chains such as Ann Taylor, Express, and The Limited. Sycamore often buys struggling retailers, sells off their most valuable assets, and cuts costs at whatever remains. The savings are sometimes used to extract dividends.
According to sources familiar with the matter, any deal for BuyBuy Baby would be part of the expected chapter 11 restructuring process. Bed Bath shares have surged this week, more than doubling to around $5, even though equity holders would likely be wiped out in a chapter 11 filing.

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The company has an interest payment due on February 1st which will be a test of whether it can stay current on its debts or if it will need to conserve cash. The notes are trading below 10 cents on the dollar, which reflects investors' expectations that the company will not be able to pay the debt back in full.