Big Lots' financial situation is so dire that it is not viable

In a June filing with the Securities and Exchange Commission, Big Lots said it was at risk of defaulting on its debt and affecting its ability to stay in business. Big Lots said in its report that it was burning through cash due to sustained losses in multiple quarters. Although the debt agreement is still being implemented, further operating losses are expected to result in an inability to service the debt. Big Lots' ability to borrow is limited by its debt agreements, financial position and future prospects. According to the report, the company has implemented a series of cost reduction, sales improvement and financial flexibility and liquidity enhancement programs. However, "based on current cash and liquidity forecasts, and the uncertain effect of the series of management actions taken, there is a significant risk that the Company will not be able to comply with the over-availability commitments under the credit agreement and loan facilities over the next 12 months, with a significant impact on the Company's ability to continue as a going concern."

The dilemma of Big Lots

Big Lots has posted consecutive losses since 2022. There has been no substantial improvement in the macroeconomic environment in the United States, and consumers have had to reduce spending, and the consumption of non-essential consumer goods such as furniture and household items has been inhibited. In the face of the challenge of market demand, the competition from other discount retailers and e-commerce is increasingly fierce. Inflation has kept costs high and made Big Lots' earnings expectations even more elusive. The combination of the above factors leads to a serious shortage of cash flow for Big Lots.

Big Lots' debt agreement includes an over-availability agreement, which requires the company to maintain a certain cash balance or unused borrowing capacity. If Big Lots fails to comply with any of the terms of its debt agreement, including the over-availability agreement, it will be considered in default. In the event of a default, Big Lots's creditors have the option of accelerating the recovery of the entire loan. This means that the company must pay all outstanding debts immediately, even if they are not yet due. Once that happens, the consequences for Big Lots are obvious.

The future is uncertain

Despite concerns about Big Lots' financial situation, it is possible that steps could be taken to avoid bankruptcy. In order to turn the tide, Big Lots implemented a number of measures to cut costs, improve sales and increase financial flexibility and liquidity.

In an effort to control costs, the company is restructuring its global procurement operations and bringing its long-standing third-party agent procurement team in-house to improve profitability. To boost sales, Big Lots uses "extreme offers" on merchandise sales. On the financing side, in April, Big Lots signed a loan agreement through a subsidiary of Gordon Brothers Capital, boosting its borrowing capacity by up to $200 million. In addition, the supply chain disruption caused by the sudden collapse of the company's largest furniture supplier in late 2022 has recovered.