In a significant development for the discount retail sector, Big Lots has filed for Chapter 11 bankruptcy protection while agreeing to sell its operations to an affiliate of the private equity firm Nexus Capital Management. This move represents a critical response to the severe macroeconomic pressures affecting the company's business, as high inflation and rising interest rates have considerably impacted discretionary spending among its core customer base. The voluntary bankruptcy proceedings were initiated on Monday in the US Bankruptcy Court in Delaware.
As part of this process, Big Lots has made a strategic decision to allow Nexus to acquire substantially all of its assets and ongoing operations. Nexus is designated as the "stalking horse bidder" in what will be a court-supervised auction process. This arrangement aims to ensure that the sale is conducted transparently and fairly, with the potential for other better offers to emerge during the auction. According to the companies involved, this sale is expected to be finalized in the fourth quarter, contingent upon receiving court approval.
If there are no other competitive bids that exceed Nexus's offer, Big Lots can proceed with the transaction. Notably, the announcement of the bankruptcy filing led to a dramatic decline in Big Lots' shares, plummeting by nearly 40% in premarket trading, signaling investor concerns over the retailer's financial stability. Bruce Thorn, Chief Executive of Big Lots, commented on the situation, stating, "The actions we are taking today will enable us to move forward with new owners who believe in our business and provide financial stability, while we optimize our operational footprint, accelerate improvement in our performance, and deliver on our promise to be the leader in extreme value." This highlights the company's commitment to reassuring stakeholders about the potential for recovery and growth under new ownership. The decision to file for bankruptcy followed a comprehensive strategic review by the retailer's board of directors, as external factors including the persistent high inflation rates and elevated interest rates significantly curtailed the discretionary spending power of its primary customers.
As part of the ongoing court-supervised sale, Big Lots will conduct a thorough evaluation of its operations, which may include the closure of additional stores and a reevaluation of its distribution center model. Moreover, in a bid to strengthen its liquidity position during this challenging period, the company has secured $707.5 million in financing commitments.
This includes $35 million in new funding from existing lenders. If the court approves this financing, it is expected that the combination of the credit facility and ongoing operations will provide Big Lots with sufficient liquidity to navigate through the sale process successfully. The company is also requesting court approval to continue essential business operations, including payments to employees and certain critical suppliers, to maintain operational continuity. On a positive note, Thorn noted that Big Lots' second-quarter underlying comparable sales "improved sequentially relative" to the prior three-month period on a year-over-year basis.
Furthermore, gross margins demonstrated a "significant improvement." Describing the current quarter, he remarked that it is "off to a good start" with notable sequential improvement in underlying comparable sales compared to the second quarter of the previous year, as well as increment in gross margin, which paints a more optimistic view of the company’s recovery. Big Lots anticipates releasing its complete second-quarter results on Thursday, which will provide further insights into its financial performance and strategy moving forward.
Investors and analysts alike will be keenly watching for updates that could signal a turn in the retailer's fortunes amidst a challenging economic landscape..