The brutal retail climate has made it very difficult for struggling companies to come back from their Covid-related financial woes. Many non-essential retailers had to shut down or operate under severe restrictions during the darkest days of the pandemic.
When restrictions eased, passengers did not necessarily return to their previous shopping patterns. At first, that was good for many retailers as some Americans had money to spend and were looking to be indulgent.
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That did not benefit every retailer, and it was a short-lived boom in many cases. In recent months, despite the general health of the economy, the high-flying stock market, and the low unemployment rate, many Americans have been wary about the economy.
It's a situation that has caused some people to pull back unnecessary spending. In theory, that should benefit discount chains, but some dollar chains and discounters have struggled. That included the New England-based Bob's Stores, which recently filed for Chapter 11 bankruptcy, and Dollar Tree (DLTR) , which plans to close over 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 (BIG) CEO Bruce Thorn blamed the economy for his company's 10.2% drop in sales to $1.009 billion in the fiscal first quarter. It also reported a loss of $132.3 million. That's an increase from $98.7 million in the year-ago period.
"While we made substantial progress on improving our business operations in Q1, we missed our sales goals due largely to a continued pullback in consumer spending by our core customers, particularly in high ticket discretionary items," he shared.
Thorn made it clear that the company was taking steps to reverse its losses and cut its expenses.
"We remain focused on managing through the current economic cycle by controlling the controllables. As we move forward, we're taking aggressive actions to drive positive comp sales growth in the latter part of the year and into 2025, and to maintain year-over-year gross margin rate improvements," 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 enhance liquidity in Q1, which included aggressive efforts to manage opex, capex, and inventory, and the execution of a new term loan facility, which provides us with significant additional financial flexibility," he shared.
Big Lots issues going concern warning
But in an SEC filing, Big Lots acknowledged that it has 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 agreements, but shared that it "expects to experience further operating losses and expects to experience difficulty remaining in compliance with such covenants."
The company has taken steps to reduce costs, improve sales, and enhance its financial flexibility and liquidity. Those efforts, it shared in the filing, may not be enough.
"Based on our current cash and liquidity projections, and uncertainties with respect to the mitigating effect of management’s plans, the company has concluded there is a significant likelihood that it will be unable to comply with the Excess Availability Covenant under the 2022 Credit Agreement and the Term Loan Facility within the next 12 months, which raises substantial doubt 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 defaults.
"Failure to comply with the Excess Availability Covenant would result in an event of default which could result in an acceleration of our obligations under the Term Loan Facility and the 2022 Credit Agreement. We can provide no assurance that the lender parties under the Term Loan Facility or the 2022 Credit Agreement would waive the company’s failure to comply with the Excess Availability Covenant," it added.
Big Lots is continuing to try to find the cash, savings, and concessions needed to continue operating.
The stock finished Friday at $1.90, unchanged. It's down 76% this year and 97% from the $72.31 closing high reached in 2021 during the the post-pandemic rally.
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"The company intends to vigorously pursue its plans to enhance its liquidity, improve the performance of the business, 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, entering a letter of credit facility, managing its working capital, and raising additional capital," Big Lots shared.
In addition, the retail chain is also looking to sell its remaining real estate "through outright sale or sale and leaseback opportunities."
