Future of Bed Bath & Beyond Depends on Reviving Its Struggling Baby Brand

The structure of the Bed Bath & Beyond Inc. bankruptcy is likely to revolve mainly around the fate of its prized Buybuy Baby brand, which comprises much of the company’s value.

The value of the much-lauded brand will be put to the test in court, after recent sales declines. The company's outlook will depend on the outcome.

Bed Bath & Beyond's options in Chapter 11 bankruptcy include selling off its baby clothing, accessories and furniture brand, or the entire company. The company is also seeking financing from new or existing investors to help turn the business around. However, given the company's persistent decline, this will be a tall order. Any path forward is likely to include further store liquidations and layoffs to stem cash burn. The company last year announced 20% job cuts and 150 store closures as part of its turnaround plan.

Asset sales may be Bed Bath & Beyond's best option to generate revenue and repay creditors during Chapter 11 bankruptcy proceedings. However, even the company's most valuable assets have lost value in recent months, which could make it difficult to generate the necessary revenue. According to the company, sales at Buybuy Baby fell by a percentage rate in the "high teens" during the quarter ended Aug. 27. Overall, net sales for the company fell by 28% during that quarter.

It was difficult to assign a value to the baby brand even when it seemed to be doing well, since its value is based on intellectual property. Some analysts estimated that it was worth $1 billion or more in early 2022, when equity purchases by GameStop Corp. Chairman Ryan Cohen boosted sentiment. Cohen himself insisted that the brand could be worth "several billion dollars."

Cohen sold his stake in August, and Bed Bath & Beyond's overall market capitalization has since dropped to $169 million, according to Bloomberg data. The shares fell as much as 25% to $1.27 in Friday trading.

As of August 27, Bed Bath & Beyond had 768 stores, while its Buybuy Baby and Harmon brands had 187. The company began to shutter around 20% of the Bed Bath & Beyond banner stores in the fall. As of the end of August, the company said it had around 30,000 total employees before the planned dismissal of around 20% of its corporate and supply-chain staff.

The retailer will provide an update on its store and staffing numbers on Jan. 10 when it reports quarterly earnings, a spokeswoman said.

Revenue from asset sales would be used to repay creditors, starting with Sixth Street Partners. Sixth Street Partners extended a $375 million rescue loan to the company in August, in exchange for a first claim on Buybuy Baby and other assets.

If no attractive bids for the brand emerge, Sixth Street could opt to "credit bid," or offer the value of its existing loan, for the asset. Sixth Street would then be left to operate the brand itself or find an operating partner.