Big Lots Reportedly Considers Bankruptcy

Big Lots, the discount retailer, faces potential bankruptcy as consumer spending declines, sending shockwaves through the retail industry.

At a Glance

Big Lots is reportedly considering filing for bankruptcy protection amid declining sales and financial troubles.
The company’s stock has plummeted, losing over 90% of its value since the start of the year.
Big Lots is seeking investments to avoid Chapter 11 bankruptcy and has received a loan of up to $200 million.
The retailer may be closing hundreds of underperforming stores this year.
Analysts attribute Big Lots’ struggles to strategic missteps and loss of its discount store appeal.

Financial Troubles Mount for Big Lots

Big Lots, the Columbus, Ohio-based discount retailer operating around 1,400 stores across the United States, is facing severe financial challenges. Reports suggest the company is contemplating filing for bankruptcy protection, a move that has sent its stock price tumbling. Big Lots shares fell over 22% in early trading to about 72 cents per share, having lost more than 90% of their value since the beginning of the year.

The retailer’s financial woes are evident in its recent performance. Big Lots reported lower-than-expected first-quarter fiscal 2024 results, with a 10.2% net sales decrease. The company experienced a $205 million loss in the first quarter and has used hundreds of millions of dollars in cash since 2022 to fund operations. Furthermore, Big Lots has taken on $72.2 million in additional debt, which means it owes over $573.8 million.

Off-price retailer Big Lots Inc. is contemplating a potential bankruptcy filing after years of sales declines, according to people with knowledge of the plans#MacroEdge

— MacroEdge (@MacroEdgeRes) August 28, 2024

Efforts to Avoid Bankruptcy

In an attempt to stave off bankruptcy, Big Lots is actively seeking investments. The company has already secured at least one loan of up to $200 million this year. Additionally, Big Lots has been working with consulting firm AlixPartners to manage costs amid declining sales. In a controversial move, four Big Lots executives recently received “retention bonuses” totaling over $5 million, raising eyebrows given the company’s financial struggles.

“We missed our sales goal due largely to continued pullback and consumer spending by our core customers, particularly in high-ticket discretionary items,” Big Lots President and CEO Bruce Thorn said back in June.

Big Lots initially announced plans to close approximately 35 to 40 non-performing stores this year, a significant shift from its previous expansion strategy, but more recent reports indicate it may close up to 315. In 2022, the company opened 56 stores but closed 62. This retrenchment highlights the severity of Big Lots’ financial situation and its attempts to streamline operations.

Factors Contributing to Big Lots’ Decline

While Big Lots attributes its struggles to inflation and reduced consumer spending, analysts believe the issues are specific to the company. Strategic missteps, such as focusing on the declining furniture market and opening too many stores based on assumed sales growth, have contributed to its current predicament. Additionally, Big Lots has lost its true discount store appeal compared to competitors like Ollie’s Bargain Outlet, further eroding its market position.

“It doesn’t look as if they are going to be able to stop the bleeding anytime soon,” Neil Saunders, managing director of GlobalData Retail, said. “The financials are going in the wrong direction. This is a business that has suffered sales declines for a reasonable period of time, and what you come to expect is that, as you go forward, those declines start to moderate a bit and then you start to go back into growth, but Big Lots shows no signs of that happening.”

The company’s sales have reportedly been on the decline for a few years now. Sales decreased by 14% in 2023, 11% in 2022, and 1% in 2021. This persistent decline, coupled with the fact that 244 out of its nearly 1,400 stores are underperforming, paints a bleak picture for Big Lots’ future. The retailer’s website traffic has also reportedly decreased by an estimated 36.81% year-to-date compared to last year, further indicating waning consumer interest.

Uncertain Future and Industry Implications

As Big Lots teeters on the brink of bankruptcy, its struggles reflect broader challenges in the retail sector, particularly among discount and home goods retailers. The company’s potential bankruptcy filing could have ripple effects throughout the industry, potentially leading to further store closures and job losses.

Retail analyst Anthony Chukumba suggests holding onto Big Lots stock in case of a miraculous turnaround or if it becomes a “meme stock.” However, he warns that bankruptcy is a real possibility and that negative media coverage could deter consumers, creating a “self-fulfilling prophecy.” As the situation unfolds, it remains to be seen whether Big Lots can navigate these troubled waters or if it will join the growing list of retail casualties in an increasingly challenging economic environment.