#so far the company interested in buying… is the liquidation company that did Bed Bath and Beyond and Big Lots

[the-old-man-has-the-phonebox]

Hey so uhh the United States is likely about to lose its last large fabric retailer? 🫠

and I’m trying to sleep and not have an autistic meltdown bc Change Is Bad™ but also there is literally NO ALTERNATIVE. Hobby Lobby is a bunch of religious freaks (idgaf if you’re Christian for the record: if you know about why there’s no barcodes in the entire store, you know they’re collectively insane. Or even the artifact theft!). Michael’s has a singular aisle of fabric if you’re lucky and it’s usually shit anyway (NEVER FORGET WHAT THEY TOOK FROM US). Quilt shops are hard to come by, and even then often sell exclusively quilting fabric.

What the fuck do we do?!? I HAVE to see my fabric in person!!!

[dippedanddripped]

NEW YORK, United States — Pepper, a start-up that sells bras designed for small-chested women, was wrapping up its $2 million seed fundraising round this spring when the coronavirus struck. Governments began to mandate nonessential businesses to close in order to slow the spread of Covid-19, triggering a massive contraction in the economy that has paralysed retailers, brands and their investors.

Pepper was always conservative with spending, said Lia Winograd, Pepper’s co-founder. But now, making cash last as long as possible has become the company’s top priority.

“We were lucky to raise when we did,” Winograd said. “We have to reach a point where we don’t have to rely on equity financing.”

Direct-to-consumer brands like Pepper are getting their first taste of what it’s like to operate in a recession. Their predecessors — the likes of Away, Allbirds and Everlane — sprang up in the years after the 2008 financial crisis, tapping a seemingly limitless pool of investor cash to steal market share from incumbents weakened by the worst economic downturn in decades. But consumers today are reserving their spending for disinfectant wipes and groceries rather than suitcases and sneakers.

Some brands may be insulated because of their category — at-home wellness, for instance, is booming — or were lucky enough to raise money right before the pandemic. But for many others, the outlook is grim.

The companies that haven’t thought at all about profitability are in deep trouble.

Brands across the board are laying off employees and cutting back on marketing to stretch their dwindling cash reserves. But saving money is especially tough for these start-ups, whose business model is based on prioritising revenue growth over profit margins. That model worked when companies could raise round after round of venture capital. It’s not clear what will happen if that spigot turns off.

“The companies that haven’t thought at all about profitability are in deep trouble,” said Nick Brown, co-founder of venture fund Imaginary, which has invested in Glossier and Reformation, among others.

There were signs of trouble for fashion and fashion-adjacent start-ups even before Covid-19 became a factor. Investors were increasingly wary of pouring more funding into money-losing brands. Outdoor Voices lowered its valuation in an internal funding round with investors late last year, after which founder and chief executive Tyler Haney exited.

The crisis today exacerbates these issues. Some direct-to-consumer brands are already asking their backers and lenders for emergency cash, investors told BoF. But raising new funding comes at a steep cost. One investor told BoF that consumer-product start-ups have seen valuations fall by one-third to one-half. The public market parallels these trends: The RealReal and Casper both saw their stocks fall by more than one-third since the crisis began to escalate in late February.

Lower valuations are disappointing for founders and their investors, who hoped to build billion-dollar businesses that they can sell at a premium to strategic acquirers or private equity firms. These acquisitions will still happen, dealmakers say, anticipating the latter half of 2020 to be filled with a flurry of deals. But price tags will be much lower than anticipated, and the winners will be the buyers.

There will be a moment where VCs are like, ‘Uh oh, we have to go up against these suitors’ or call it a loss.

“We’ve certainly been approached by brands that are saying, ‘Hey, I know we spoke before and you didn’t think we have the right growth strategy, but now we’ll accept a lower valuation,’” said Ben Macpherson, founder of d.Luxury, a growth investment firm whose portfolio includes accessories brand Cuyana and bedding startup Parachute.

Selling at a lower-than-hoped valuation may be a best-case scenario. Brands that find themselves behind on debt payments or falling far short on revenue goals will see their fate entirely in the hand of their investors, for whom the onslaught of opportunistic buyers outside of Silicon Valley — the private equity vulture funds, or powerful retailers like Walmart or Target that have remained opened amid the crisis — will propel critical decisions: They must identify which startups to continue supporting with additional capital, often despite mounting losses, and for which to throw in the towel.

“Private equity will come in with a mix of debt and cash, get high priority on the stack, and they’ll get their money back before anyone else does,” said Alex Song, founder of Innovation Department, a platform that builds in-house DTC brands and makes venture investments as well. “There will be a moment where VCs are like, ‘Uh oh, we have to go up against these suitors’ or call it a loss.”

Without a lifeline from current investors or outside ones, some brands will not be able to brave the storm at all. But those that survive will be leaner and more resilient, industry experts said. And just as many of the current crop of fashion start-ups emerged from the last financial crisis, new opportunities will arise as the pandemic changes consumer habits

The risk assessment phase is over.

In the first few weeks after most US states implemented lockdowns, venture fund Highland Capital Partners swapped out its normal schedule to focus solely on figuring out how the pandemic would affect the bottom line of the companies they had invested in, and how long they would be able to operate before running out of liquidity.

Brands selling products like skincare and loungewear, for instance, are in a better position than workwear or luggage.

“We saw that we have some businesses that are doing quite well through this and some that are facing a lot of pressure,” said Sean Judge, principal at Highland, which has invested in the likes of Rent the Runway, Harry’s and ThredUp. For the brands struggling, “it’s a matter of figuring out how to cut costs, which may mean headcount reductions.”

The firm is meeting with founders again to consider new investments, with a set of criteria that favour companies immune to the sales impact of the pandemic — an indication that they will perform well coming out of crisis-mode as well, Judge said. “We’ve had to shift and raise that bar, but we’ve been very active.”

In the consumer space, investors say categories slated to outperform post-pandemic include affordable bath and beauty, home improvement and household products.

Funding is still out there for early-stage companies

While deal count in the VC space remains low for now, investors can still make deals happen, according to Song.

According to Crunchbase, the number of venture deals in the first quarter of the year — 7,600 globally — fell by four percent compared to the same period last year.

The investors themselves, their capital is secure.

Imaginary’s Brown noted that looking at deal trends in the aftermath of the 2008 financial crisis, the industry can predict that the number of seed fundraising rounds won’t drop but Series A and B will, because investors will be more discerning about the progress of profitability.

Many investors build their funds with a 10-year plan for returns, so they aren’t as sensitive to temporary setbacks, even severe ones like the current economic crisis, Song said.

“At first, everyone is frozen. They want to get a sense of what people think but no deals happen,” Song said. “But the investors themselves, their capital is secure.”

Virtually every start-up is seeking emergency funding

Even as e-commerce brands may be faring dramatically better than brick-and-mortar-reliant retailers like Gap, overall consumer spending is down. This means that direct-to-consumer players are hurting too. Data from Earnest Research, for instance, show that e-commerce spending on apparel and accessories were down more than 30 percent in the last week of March, and down 5.5 percent in the week ending April 15.

In the face of sluggish sales, many DTC brands are in the process of obtaining emergency financing and equity fundraising, often at a lower valuation than in previous rounds, according to Song.

“It’s a new world of valuations,” he said. Valuations last year, for instance, may have been calculated on a company’s projection of its current annual revenue, or run rate. Now, valuations are more likely to be based on last year’s revenue.

Even that seems generous, according to Macpherson, who has seen some valuations dip by one-third or a half. “It depends on the sector,” he said. “And some just can’t raise any capital.”

The thesis of spending $100 million to build a $100 million business just doesn’t seem logical now.

Naadam, a DTC cashmere brand, completed its Series B funding round last May, according to co-founder Matt Scanlan. The fortuitous timing, alongside Naadam’s naturally slow business in the spring and summer (the bulk of cashmere sweater buying happens between September and February), will protect the label from running out of cash, he said.

But not every brand can be defensive against months of lost sales. The most vulnerable are companies that aggressively raised and spent capital in order to buy growth — a trajectory that just isn’t feasible during the crisis.

“The thesis of spending $100 million to build a $100 million business just doesn’t seem logical now,” said Scanlan said.

The pandemic’s full impact won’t be felt until summer at the earliest

In addition to reaching out to existing investors, many start-ups have applied for the Paycheck Protection Program, part of the US government’s $2 trillion stimulus package. The loan program, administered by the Small Business Bureau, allows companies of fewer than 500 employees to seek financial assistance in covering their rent, payroll and interest expenses during Covid-19.

That funding will help DTC brands survive for the next few months, but their problems will resurface as soon as the stimulus money and emergency funding runs out, analysts and investors say.

There will definitely be a smattering of brands where investors are like, ‘Just get us out of here.’

Macpherson of d.Luxury said in a couple months there will be more clarity around winners and losers.

“There will definitely be a smattering of brands where investors are like, ‘Just get us out of here,’ either through a distressed sale or basically leaving it in the hands of the founders,” he said.

A private equity ‘field day’ is coming.

Sam Kaplan, a former partner at Burch Creative Capital, left the venture firm last year to make his own investments with the hypothesis that many direct-to-consumer brands were overvalued and would soon be available to buy in fire sales.

He had a few examples to support his theory, including Steve Madden’s acquisition of the sneaker brand Greats last summer. Now, he’ll likely have his own pick of distressed start-ups.

“This is morbid to say, but coronavirus sort of accelerated this [prospect],” Kaplan said. He has yet to make an investment; at the three- or four-month mark is when “I’ll get good deals,” he added.

From there, the playbook would involve dramatically cutting costs, adding wholesale partners and focusing on profitability – the classic private equity treatment. Many DTC brands are well-known to consumers because they spent so much on customer acquisition early on. Once their profit and loss statements are in check, these brands can be very lucrative.

“The path for private equity is ripe,” Song said. “These businesses are still valuable — they’re strong brands that customers care about and relate to, and if they operated on cash flow instead of focusing on top-line growth, you’d actually have a viable business.”

The coronavirus will change the DTC playbook.

Newer brands like Pepper aren’t locked into the cycle of raising and spending venture capital every 12 to 18 months. If they can adapt to the new reality, they stand a better chance than some of their older peers.

Keeping costs under control will be more important than ever for small brands. But there will be winners among better-established brands, too.

“These are the players diversified in terms of channel, thoughtful about building a strong financial foundation, and have winning supply chains,” Naadam’s Scanlan said.

Looking ahead, Imaginary is seeking new categories to invest in, including affordable clean beauty, at-home wellness and products targeted at baby boomers, who were underserved by venture-backed brands in the past.

Investors like Brown are optimistic, pointing to the crisis as a start of something new rather than a spell of demise.

“The reality is that when you look at most recessions, during those periods you see a ton of businesses emerge — great entrepreneurs with great ideas,” he said

[traderspro]

s BBBY a bargain, or just cheap?

Warren Buffett is justifiably considered as one of the most successful investors of all time. The methods he employs to identify long-term investment opportunities have been thoroughly documented, by himself and others, and copied by value-oriented investors for decades. The annual reports he writes for Berkshire Hathaway are considered required reading in many investor quarters for the insights they give about his investing approach and its use under current market conditions, and market media outlets pay close attention to any opinions he renders about the economy or the market in general.

One of the outcomes of Mr. Buffett’s success is that his observations about investing, the markets and the economy in general make for great sound bites that many of us who try to model his approach use to encapsulate elements of our own strategies. One of my personal favorites is his definition of value investing as buying a “good company at a nice price.” Those two terms are both important to understand in their proper context, especially when current market conditions are pushing stock prices off of their all-time highs, to multi-year low levels.

It’s pretty natural to look at a stock that has been dropping in price, especially for an extended period of time, and to start wondering if the stock’s drop means there is a useful new opportunity to be had. After all, we’re all looking to “buy low, and sell high” later, so no matter whether you prefer a short-term, swing trading method or a longer-term, fundamentally driven strategy, lower prices should naturally start to make you think about if the stock you’re looking at could be worth your hard-earned investment dollars.

The market is also pretty good, in the long-term at least, at pricing a company’s underlying business strength – what you might think about as its fundamental quality – into a stock’s market price. That means that while stock prices can be driven by market forces like broad economic uncertainty or geopolitical pressures – hello, trade war, interest rates, and global economic slowness – in the long-term, they tend to be driven by the stability and effectiveness of the underlying business itself. If a company is well-managed and showing that it has the ability to grow its business effectively, the market will usually factor that into the stock price by pushing it higher in the long run. This idea is a core tenet of what analysts and economists generally refer to “efficient market theory.”

Efficient market theory also folds back into my favorite Warren Buffett quote, because it means that just because a stock is trading at low levels – what might be a “nice price,” you have to be careful not to automatically assume that it is also a “good company.” Sometimes a stock is cheap for important reasons, and that longer trend should be taken as a sign to stay away, because the company’s fundamental quality just doesn’t support the idea that the stock is worth more than it is right now. That’s why I draw a line to differentiate between stocks that I think are a bargain – good, fundamentally strong companies trading a discounted stock prices – and cheap stocks. To me, cheap stocks are cheap for a reason and will usually stay cheap for the foreseeable future.

This morning I look a look a stock that I’ve followed off and on for quite some time, Bed Bath & Beyond (BBBY), and these basic value concepts came quickly to mind. This is a stock that has been following a steady downward trend for almost five years, declining from an all-time high around $80 to its current level a little above $12 per share. Over the past year, the stock is down more than 48%, and nearly 13% in just the last month. That decline has been driven by persistent concerns about the company’s ability to adjust and survive in a changing retail environment that is increasingly placing less value on traditional brick-and-mortar stores and more on omnichannel sales. The company has been working to shift its focus to a more web-driven strategy, but even that is being viewed with a fair degree of skepticism by Mr. Market since online sales generally translate to much narrower margins.

This kind of long-term downward trend generally doesn’t happen unless there are critical, fundamental reasons behind it. So while the stock is, by most valuation metrics I like to use, definitely underpriced, I hesitate say that it is a bargain because of the critical questions that persist about the company’s strategy and focus. There are some interesting fundamental strengths that work in this company’s favor, however that might prompt you to believe otherwise. Let’s take a look.

Fundamental and Value Profile

Bed Bath & Beyond Inc. is a retailer, which operates under the names Bed Bath & Beyond (BBB), Christmas Tree Shops, Christmas Tree Shops andThat! or andThat! (collectively, CTS), Harmon or Harmon Face Values (collectively, Harmon), buybuy BABY (Baby) and World Market, Cost Plus World Market or Cost Plus (collectively, Cost Plus World Market). The Company operates in two segments: North American Retail and Institutional Sales. The Company sells a range of domestics merchandise and home furnishings. Domestics merchandise includes categories, such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and juvenile products. The Company operates approximately 1,530 stores plus its various Websites, other interactive platforms and distribution facilities. BBBY has a current market cap of about $1.7 billion.

Earnings and Sales Growth: Over the last twelve months, earnings declined -52%, while revenues were mostly flat, at -.05%. The picture did improve in the last quarter, as earnings picked up by 12.5%, while sales increased a little over 6.5%. The company’s operates with a very narrow margin profile that is constricting even more, since Net Income as a percentage of Revenues dropped to 1.65% in the last quarter versus 2.81% over the last twelve months. I read this as a clear reflection of the company’s strategy and effort to evolve their business to include a larger emphasis on online sales and revenues. That could keep pressure on the company’s bottom line, but if these numbers start to stabilize – particularly Net Income, which has been declining steadily since late 2014 – it could be a sign that their efforts are gaining positive traction and the strategy is working.

Free Cash Flow: BBBY’s free cash flow is very healthy, at $753 million over the last twelve months. This is a major increase over the past year, from a low at about $483 million in the fourth quarter of 2017. This number also translates to an outsized Free Cash Flow Yield of 47.5%. This is an interesting counter the company’s narrow, constricting margin profile and could be an early indication that the company is doing the right thing, and it is starting to work.

Debt to Equity: BBBY’s debt/equity ratio is conservative, at .51. The company’s balance sheet shows that long-term debt is a little less than $1.5 billion, while cash and liquid assets around a little over $1 billion. The company’s narrow margin profile calls into question their ability to service their debt on operating profits alone, but their sizable cash position means that they can comfortably cover any operating shortfall. It should also be noted that since the fourth quarter of 2017, their cash and liquid assets have increased from a low point at about $350 million.

Dividend: BBBY’s annual dividend is $.64 per share, which translates to a yield of 5.13% at the stock’s current price. That is a very attractive yield, and could be an interesting draw reason to think about taking a long-term position if you think the stock’s current price reflects a useful bargain.

Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value. BBBY has a Book Value of $21.02. That translates to a Price/Book ratio of .57, versus a historical ratio of 2.38. Forecasting a 400%+ increase in the stock’s price would put it above $50 per share, which is a level the stock hasn’t seen since late 2015. I think that is over-optimistic given the long-term strength of the downward trend, but the stock’s Price/Cash Flow ratio provides a somewhat more conservative forecast, since it is trading about 273% below its historical average and puts that target price around $32. That price level was last seen in mid-2017.

Technical Profile Here’s a look at the stock’s latest technical chart.

Current Price Action/Trends and Pivots: This is a two-year chart that clearly shows the strength of the stock’s downward trend; the stock appeared to be showing some interesting signs of consolidation from April through September of last year, but then broke down in a big way at the beginning of October, which precipitated the stock’s decline to its current levels. More recently the stock stock appears to have rebounded from low around $10.50 that is the lowest level it has seen so far in the 21st century. The low end of last year’s consolidation range is around $17, and the stock would need to push above that level at minimum to establish any kind of sustainable rally that could reverse the stock’s more than four-year downward trend.

Near-term Keys: Despite the intriguing possibilities the stock’s current valuation metrics suggests, I’m not confident the stock is likely to rally anytime soon. The fundamentals are mostly solid, so there is a good argument to be made that BBBY isn’t just a cheap stock, but I would prefer to see the company’s margin profile stabilize, or even show signs of improvement before I buy into the stock’s value proposition. I also don’t think, however that there are good reasons to look for any kind of bearish trades, either by shorting the stock or working with put options. The break above $17 I mentioned earlier is the minimum price level I would look to for any kind of bullish trade, on either a long-term or short-term basis.