For a third time this year, Bed Bath & Beyond (BBBY), a retailer, has used an accounting loophole to hide millions of dollars in liabilities from investors. Shares plunged 20% after the company slashed its sales and earnings forecast during its latest quarterly earnings announcement. Our analysis indicates Bed Bath & Beyond’s performance was even worse than reported.

In its latest 10-Q, Bed Bath & Beyond revealed it’s now hiding additional future operating lease liabilities off-balance sheet:

“At August 28, 2021, the Company has entered into 2 leases which have not yet commenced at new locations planned for opening in fiscal 2021, which are not included in the above table and for which aggregate minimum rental payments over the term of the leases are approximately $6.6 million.”

Excluding “not yet commenced” leases from the balance sheet is an accounting loophole Bed Bath & Beyond and others are using to hide billions of dollars of liabilities from investors.

Though widely used, this treatment appears inconsistent with FASB’s guidance on the topic. If a lease is legally binding— as Bed Bath & Beyond acknowledges— Topic 842 (ASU 2016-02) makes clear that it must be accounted for on the balance sheet:

“A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)...”

It’s the second quarter in a row Bed Bath & Beyond has used the loophole.

The company also uses an inflated discount rate to understate the present value of its future operating lease liabilities.

In addition to aggressive accounting, Bed Bath & Beyond is overstating its cash position by withholding lease payments. The latest quarterly filing reveals the company has not paid landlords millions of dollars in lease payments:

“In fiscal 2021, the Company has continued to withhold payments to certain landlords in connection with certain negotiations of payment terms. Total payments withheld and/or delayed or deferred as of August 28, 2021 and February 27, 2021 were approximately $4.1 million and $9.6 million, respectively, and are included in current liabilities”