The brutal retail climate has made it very difficult for struggling businesses to recover from their Covid-related financial problems. Many non-essential retailers had to close or operate under severe restrictions during the darkest day of the pandemic.
When restrictions eased, passengers did not necessarily return to their previous shopping patterns. At first, that was a good thing for many retailers, as some Americans had money to spend and were looking to be indulgent.
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This did not benefit all retailers and in many cases it was a short-lived boom. In recent months, despite the overall health of the economy, the rising stock market and the low unemployment rate, many Americans have been cautious about the economy.
It is a situation that has caused some people to reduce unnecessary expenses. In theory, that should benefit discount chains, but some dollar chains and discount stores have struggled. That includes New England-based Bob's Stores, which recently filed for Chapter 11 bankruptcy, and Dollar Tree, which plans to close more than 600 Family Dollar locations.
Now, another struggling national discount retailer, which has been openly working on its liquidity situation for months, has shared that it may not have the cash needed to survive.
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Big Lots has struggled and sales have slowed
Big Lots CEO Bruce Thorn blamed the economy for his company's 10.2% drop in sales in the first quarter, when it also reported a $132.3 million loss. That's an increase from $98.7 million over the same period last year.
“While we made substantial progress in improving our business operations in the first quarter, we fell short of our sales goals due in large part to a continued pullback in consumer spending by our core customers, particularly on discretionary items from high cost,” he shared.
Thorn made it clear that the company was taking steps to reverse its losses and reduce its expenses.
“We remain focused on managing the current economic cycle by controlling the controllables. As we move forward, we are taking aggressive steps to drive positive comp sales growth in the latter part of the year and into 2025, and to maintain year-over-year year improvements in the gross margin rate in the last year,” he added.
The CEO made it clear that he was focused on liquidity and the bottom line.
“We are pleased with our actions to preserve and improve liquidity in the first quarter, which included aggressive efforts to manage operating spending, capital spending and inventory, and the execution of a new term loan facility, which provides us significant additional financial flexibility,” he shared. .
Big Lots Problem Warning
Big Lots, in a filing with the SEC, acknowledged that it incurred net losses and used cash in operating activities in 2022, 2023 and the first quarter of 2024. It currently remains in compliance with its credit covenants, but shared that it “expects to experience further losses.” and expects to experience difficulties in continuing to comply with such agreements.
The company has taken measures to reduce costs, improve sales and improve its financial flexibility and liquidity. Those efforts, he shared in the presentation, may not be enough.
“Based on our current cash and liquidity projections, and uncertainties regarding the mitigating effect of management's plans, the company has concluded that there is a significant probability that it will not be able to comply with the Excess Availability Covenant under the 2022 Credit Agreement and the Term Loan Facility within the next 12 months, raising substantial doubts about the Company's ability to continue as a going concern,” Big Lots shared.
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The chain explained what could happen if it fails to comply.
“Failure to comply with the Excess Availability Covenant would result in an event of default that could result in an acceleration of our obligations under the Term Loan Facility and the 2022 Credit Agreement. We cannot provide any assurance that the lending parties under the Term Loan Line or the 2022 Credit Agreement would exempt the company from non-compliance with the Excess Availability Pact,” he added.
Big Lots continues to try to find the cash, savings and concessions necessary to continue operating.
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“The company intends to aggressively pursue its plans to improve its liquidity, improve business performance and avoid a covenant violation. The company is evaluating various alternatives to improve its available liquidity, including, but not limited to, lease concessions and deferrals , sign a line of credit, manage your working capital, and raise additional capital,” Big Lots shared.
In addition, the retail chain is also looking to sell the rest of its properties “through direct sale or sale and leaseback opportunities.”
