Discount retailer Big Lots (BIG) has filed for bankruptcy protection, initiating a court-supervised process to sell its assets and business. The company reported assets and liabilities ranging between $1 billion and $10 billion in its Chapter 11 filing. A Chapter 11 filing will allow the company to continue operating as it restructures and works on a creditor repayment plan.
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Why Has BIG Gone Bankrupt?
To understand why Big Lots sought court protection, it’s important to look at its financial struggles. After years of declining same-store sales and store closures, Big Lots took the step of filing for bankruptcy. In conjunction with the filing, it has entered into a sale agreement with an affiliate of private equity firm, Nexus Capital Management. Nexus will act as a “stalking horse bidder,” meaning it will purchase the business if no better offers emerge. The transaction is expected to close in the fourth quarter of this year.
Details of BIG’s Bankruptcy Process
To keep the company running during the sale process, Big Lots has secured a $707.5 million post-petition credit facility. This credit facility, combined with cash generated from ongoing operations, is expected to provide the company with sufficient liquidity to continue running its business.
Additionally, the retailer has filed several motions seeking court approval to support its operations, including paying employee wages and benefits and continuing payments to critical vendors. Big Lots expects these motions to be approved, allowing it to pay vendors in full for goods and services provided after the bankruptcy filing.
As part of the restructuring, Big Lots is also reviewing its operational footprint, which could involve further store closures and adjustments to its distribution center model.
BIG Sees Improving Financial Results
Moreover, the retailer recently hinted at its Q2 results that underlying comp sales showed year-over-year improvement, along with a notable increase in gross margins compared to Q1. This improvement was partly due to the retailer’s focus on key strategies, especially expanding extreme bargain offerings. In addition, the company’s management mentioned that Q3 is off to a strong start, with sequential growth in comparable sales and gross margin compared to Q2, and expects this positive trend to continue throughout the rest of the year.
Looking ahead, Big Lots is expected to report its second-quarter results on September 12.
Is Big Lots Stock a Buy?
Analysts remain bearish about BIG stock, with a Moderate Sell consensus rating based on two Holds, and one Sell. Over the past year, BIG has declined by more than 90%, and the average BIG price target of $1.25 implies an upside potential of more than 100% from current levels.
