Bath in bed and beyond: can baby get out of the bathwater?


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the valuable and still growing Buybuy Baby business is attracting interest. Will the thriving chain of baby products finally see the light of day?

The Wall Street Journal reported on Friday that potential suitors have emerged for Bed Bath & Beyond’s Buybuy Baby business. The suitors include private equity firm Cerberus Capital Management and a special purpose acquisition firm chaired by former Casper Sleep chief executive Philip Krim.

The interest isn’t all that surprising, given that Buybuy Baby is a beacon of hope for the struggling retailer. In the last quarter ended Feb. 26, banner brand Bed Bath & Beyond saw same-store sales decline 15% year-over-year, while Buybuy Baby saw moderate growth on the same basis. . As Loop Capital equity analyst Anthony Chukumba noted in a recent report, Buybuy Baby is the only baby products retailer nationwide. The chain also happens to be profitable. The unit had a margin based on earnings before interest, taxes, depreciation and amortization in the “mid figures” last year, compared to an Ebitda margin of only around 2% for the entire company.

What is more notable is the relatively lukewarm reaction of the stock market. In a letter to Bed Bath & Beyond board members on March 6, activist investor Ryan Cohen said Buybuy Baby was likely “much more valuable than [Bed Bath & Beyond’s] all market capitalization.

Shares of Bed Bath & Beyond rose 8% after the Journal report on Friday, although it pared some gains on Monday afternoon. Overall, Bed Bath & Beyond’s market capitalization is up less than $100 million from what it was just before Mr Cohen’s stake was revealed, on a base of $1.3 billion. of dollars.

Even with an attractive offer, a sale from Buybuy Baby will come with complications. The business split could result in additional costs as the company loses “buying and distributing synergies,” as UBS equity analyst Michael Lasser noted in a report.

Bed Bath & Beyond’s deteriorating financial health also introduces some wrinkles. Last fiscal year, the company’s net debt was about 4.6 times EBITDA, much worse than the pre-pandemic figure of 0.8 times. Mr. Chukumba noted that any money received from the deal would likely have to be used to pay off that debt. This means it could not be used for a special payment to shareholders, or reinvested in the struggling core business. There would also be a heavy tax bill to pay.

No one wants to keep Buybuy Baby around, but no one seems to think getting him out will be easy either.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

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