Bed Bath and Bankruptcy: 3 More Retail Stocks on the Brink

Retailers are once more struggling to turn profits, cut operating costs and, well — just sell stuff.
Steven Porrello
By Steven Porrello  
Published
Edited by Rick VanderKnyff  

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The bankruptcy of Bed Bath and Beyond (BBBY) forces investors in retail stocks to confront an uncomfortable truth: This retail giant likely won’t be the last household name this year to shutter its stores forever.

After a brief pause of bankruptcies during the pandemic, retailers are once more struggling to turn profits, cut operating costs and, well — sell stuff. Changes in shopping trends and a preference for e-commerce and delivery services have left many former retail giants glutted with inventory. Add in rising borrowing costs, and it’s not hard to see why many brick-and-mortar retailers are hanging on by a Joann-fabric thread.

Call it the next phase of the “retail apocalypse,” but bankruptcies are likely not over yet. Ignore the meme trains and bandwagons — these three retail stocks might be risky long-term investments.

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Rite Aid

  • Share price: $2.16.

  • Market cap: about $122 million.

  • Year to date: -35.33%.

  • Year over year: -66.77%.

Rite Aid (RAD) announced the closure of 145 stores last year and may close more in 2023. The retail pharmacist is deeply indebted, bleeding cash and struggling to compete with more formidable opponents like CVS and Walgreens.

Rite Aid hasn’t had a profitable quarter since the fourth quarter of 2019. According to its latest earnings report, Rite Aid lost roughly $750 million in the 53-week period ending March 4, 2023. Though the company reduced expenses year over year, from $25.1 billion to $24.8 billion, it generated less revenue, from $24.5 billion to $24 billion. Worse: Rite Aid expects even less revenue in 2024, from $21.7 billion to $22.1 billion.

As Rite Aid’s profit margins continue to sink, its short-term debts are nearing maturity. Its 2025 senior notes have an outstanding balance of $320 million, while loans and bonds amounting to $2.9 billion come due in 2026.

Even more concerning for investors is the opioid prescription lawsuit. The U.S. government is suing Rite Aid over concerns the company knowingly filled hundreds of thousands of prescriptions “illegally” between May 2015 and June 2019. Imagine that the government wins: Just where will Rite Aid come up with settlement money?

Not from its investors. Rite Aid’s stock has hit all-time lows in 2023. Its current share price, $2.16, is roughly 91.3% below its initial public offering, or IPO, price of $25 per share. To put that into perspective, consider that the company launched its IPO in 1968 and had its highest share price of $993 in January 1999.

In April 2022, Rite Aid rejected a buyout offer from the private-equity firm Spear Point Capital Management for $815 million, at $14.60 a share. Since then, the company's market cap has dropped from $428.4 million to about $122 million.

Joann

  • Share price: $1.62.

  • Market cap: about $67 million.

  • Year to date: -43.16%.

  • Year over year: -84.57%.

The arts-and-crafts retailer Joann (JOAN) may not be as near to bankruptcy as Rite Aid. But the company’s outlook isn’t exactly positive.

After a brief valuation surge during the pandemic, Joann has struggled to attract customers to its brick-and-mortar stores. The company reported quarterly losses of $91.1 million for the fourth quarter of 2022, with sales declining 5.8% year over year to $692.8 million. This gave Joann a loss of roughly $201 million for the 52-week year ending Jan. 28, 2023.

Looking closer, we’ll see Joann’s net long-term debts have grown year over year, from $779 million to $976 million. This wouldn’t spell bad news had the company not also seen a decrease in cash on hand, from $22.5 million to $20.2 million. This decrease in cash is one reason the company borrowed $100 million on a “first-in last-out,” or FILO, loan, which it used to pay down part of a $500 million debt.

That in itself is a red flag: A company that uses debt to pay off debt should give investors pause.

Kirkland’s

  • Share price: $3.01.

  • Market cap: about $38 million.

  • Year to date: -8.79%.

  • Year over year: -57%.

Kirkland’s (KIRK), with stores in 35 states, is another home decor retailer whose declining sales and increasing debts have placed it on the list of endangered species.

While the company cut operating costs after closing 16 stores in 2022, its most recent quarterly report wasn’t exactly encouraging. Some of the most concerning financials included:

  • Net sales declined roughly 8% in the fourth quarter of 2022. This is significant because Kirkland’s typically drives in heavy sales during the holiday season. A decline in sales during its busiest months is not a great sign.

  • Net sales and gross profits fell year over year. The company reported net sales of $498.8 million in 2022 versus $558.2 million in 2021. Comparable same-store sales also decreased 9%, with e-commerce falling 11.6%. Its gross profits were also down: $119.8 million versus $188.4 million.

  • Dwindling cash. At the end of 2021, Kirkland’s had roughly $25 million in cash. That fell to $5 million at the end of last year.

  • Adjusted net loss of $30 million for 2022. Kirkland’s wasn’t profitable last year, whereas in 2021, the company reported a $20 million adjusted net income.

To sum it up, Kirkland’s is selling less inventory, making fewer profits and retaining less cash on hand. And to top it off — the company still has debts to repay, amounting to roughly $274 million.

Should you invest in retail stocks in 2023?

To be sure, not every brick-and-mortar retailer is in danger of going bankrupt, and even the companies listed above have a chance to turn things around. But if you want a stock that will survive the “retail apocalypse,” be sure you look closely at its fundamentals. Check the company's most recent balance sheet to see whether it’s profitable, whether its e-commerce sales are growing and whether it has more cash than liabilities.

» Learn more: How to research stocks

Neither the author nor editor held positions in the aforementioned investments at the time of publication.

Top photo by Joe Raedle/Getty Images via Getty Images

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