Reeling from a collapse in its stock price and at the mercy of Wall Street banks, Bed Bath & Beyond Inc. warned it will likely go bankrupt if a last-gasp US$300 million equity offering fails.

The retailer filed to sell new shares to stay afloat and repay creditors after a hedge-fund rescue effort faltered and as day traders — famed for bidding up unprofitable companies — flee. If the offering “is not fully consummated,” the company said Thursday, “we expect that we will likely file for bankruptcy protection.”

Shares closed down 26 per cent in New York on Thursday to a record low of 59 cents. 

The troubled firm was close to going bust earlier in the year but secured an 11th-hour rescue from Hudson Bay Capital Management — which agreed to provide more than $1 billion as long as the retailer’s share price didn’t plunge below US$1.25 or US$1.50, depending on the timing.

With the stock trading far below those levels, the deal with Hudson Bay is no more. That’s put Bed Bath on the brink of liquidation, giving banks including JPMorgan Chase & Co. the upper hand.

Bed Bath would first send all net proceeds from the share sale to its lenders on Wall Street, the filing said. If it raises enough funds, the retailer would then focus on buying merchandise to stock its shrinking fleet of stores.

“The actions we’ve taken have enabled us to create the necessary financial runway to begin restoring our iconic Bed Bath & Beyond and Buybuy Baby businesses,” Chief Executive Officer Sue Gove said in a statement.

The latest deal arranged by B. Riley Securities, known as an at-the-market offering, has the advantage of raising funds faster than the agreement with Hudson Bay — in theory. Yet retail traders, who turned the company into a meme stock last year, are rushing for the exits. The cohort have sold more than US$2 million worth of stock since March 17, data from Vanda Securities show — a sharp retreat from last summer when the group poured in millions.

“Even if Bed Bath can miraculously remain a going concern, we don’t think there’s an opportunity for shareholders to find return in the stock,” says Jaime Katz, an analyst at Morningstar who sees the shares worth US$0. 

The retailer also faces mounting operational challenges that make an eventual bankruptcy filing likely, according to analysts, investors and some of the retailer’s suppliers. Revenue is plummeting after many shoppers turned their backs on the company following a failed pivot to bolster its private-label offering. 

“At first glance, it seems unlikely this will be enough for them to avoid an eventual bankruptcy,” said Dennis Cantalupo, chief executive officer of Pulse Ratings, a credit-rating and consulting firm. “But they are certainly leaving no stone unturned. Additional capital will provide them some time, but they need to change the trajectory of operations to remain a viable retailer.”

Bed Bath said that preliminary results show continued operating losses and a comparable decline in sales around the 40 per cent to 50 per cent range for the fiscal fourth quarter ended Feb. 25. Preliminary sales were about US$1.2 billion.

Meanwhile the company has significant debt payments on the horizon. 

“It’s still an unsustainable capital structure,” said S&P Global Rating analyst Declan Gargan in an interview. 

The retailer said it’s on pace to have 360 Bed Bath & Beyond stores by the end of April — less than half of what it had in the autumn — and 120 Buybuy Baby shops. It’s been shuttering hundreds of stores across the U.S., running big sales to clear out merchandise and laying off thousands of employees, some of whom haven’t received severance.

The latest equity offering will further dilute current investors, who have already seen the number of common shares more than triple this year. A completed sale of US$300 million in stock would add roughly 505 million shares to the pool available for trading, using Thursday’s closing price of 59 cents. The company said it will publish its 2022 fourth quarter and full-year results at the end of April.