The Container Store could see its business upend if it is unable to secure additional funds by Jan. 31, putting a $40 million investment from the parent of Bed Bath & Beyond into jeopardy.
The organizational retailer based in the Dallas area with 103 U.S. stores is in "advanced discussions" with lenders under its existing term loan credit agreement to provide additional capital to support the company and its long-term growth, The Container Store said in a Thursday filing with the Securities and Exchange Commission.
But the company doesn't expect its agreement announced last month with Beyond, the owner of Bed, Bath & Beyond and other brands, "will be consummated on the previously disclosed terms," according to the filing.
The filing comes after Utah-based Beyond told its investors late Wednesday that "Beyond has concerns regarding The Container Store's ability to reach agreement with lenders on terms that would satisfy the financing requirements under the purchase agreement." The financing terms were undisclosed.
"When we signed the purchase agreement, we were optimistic that The Container Store would be able to secure adequate financing to support the business going forward," Beyond's Executive Chairman Marcus Lemonis said in a statement. "While we continue to believe in The Container Store's brand and business fundamentals, the proposed financing terms we have reviewed to date fall short of what we believe is necessary to complete the transaction."
Beyond declined to comment further for this story. Representatives for The Container Store didn't immediately respond to requests for comment from CoStar News.
Beyond said it would continue to evaluate any financing proposals provided by The Container Store. If the retailer is unable to obtain what Beyond calls "commercially acceptable financing as set forth in the purchase agreement" by Jan. 31, either party may terminate the agreement.
Beyond's disclosure to investors shows a vote of no confidence in The Container Store's business, taking away what was once a lifeline for the struggling retailer with mounting losses totaling nearly $31 million to date, said Neil Saunders, a retail analyst and managing director for analytics firm GlobalData.
"The current trajectory of The Container Store is very difficult," Saunders told CoStar News. "They need the investment to shore up their balance sheet and give them some financial fire power. They were relying on this funding to accomplish these things and, if pulled, they would need to turn to other sources of investment."
The Container Store still has equity on its balance sheet, he said, meaning it could reach some terms for loans. But those terms might not fit with what Beyond is looking to invest in, he added.
"The business is not in a robust financial place," Saunders said. "The company is still burning through cash with a negative cash flow and consistent losses. The consumer environment is under pressure, making investors and lenders even more nervous. It feeds into the air of gloom around the Container Store."
If the Container Store is unable to secure new investment in its business or grow sales, Saunders said the company may have to consider cost-cutting measures, including cutting jobs or closing unprofitable stores. Last month, The Container Store told CoStar News it planned to close two of its U.S. stores, with one in Los Angeles and one in Chicago, because of rising rental rates and was curtailing plans to open any new stores.