The company has suffered losses over the past years and is facing liquidity issues.
Discount chain Big Lots received approval to shut down hundreds of outlets, after the company expressed “substantial doubt” on continuing business operations.
The store closure approval is part of a recent amendment made to a 2022 credit agreement with lenders, the company said in an Aug. 2
filing with the U.S. Securities and Exchange Commission (SEC).
The agreement originally gave approval to close up to 150 outlets, and the amendment boosted it up to 315. In addition, a $900 million credit facility was reduced to $800 million and interest rates on borrowings have been raised by 50 basis points.
Big Lots has 1,392 stores across the United States, according to a June SEC
filing. The closure of 315 outlets would represent more than 22 percent of its total shops. The store count has already been reduced from last year’s 1,425 outlets.
The company also raised concerns about its ability to remain operational as it incurred net losses in 2022, 2023, and the first quarter of 2024, and was forced to use cash in its operating activities, the June filing said.
“Due to ongoing negative macroeconomic factors and their uncertain impacts on the company’s business, results of operations, and cash flows, the company expects to experience further operating losses,” according to the filing.
In June, Big Lots CEO Bruce Thorn
said that the company missed its first quarter sales target this year due to “continued pullback in consumer spending by ... core customers, particularly in high ticket discretionary items.” However, he vowed to transform the discount retailer.
“The current financial performance does not yet reflect the stronger business model that we’ve created through our five key actions, but we expect the fruits of those efforts to become more apparent in the back half of the year.”
Series of Store Closures
At the same time, several other retail chains have announced the shuttering of outlets this year.Last month supermarket chain Stop & Shop
said it will close 32 outlets on or before Nov. 2. The company decided to “close underperforming stores to create a healthy base for the future growth of our brand.”
The same month, furniture retailer Conn’s
announced shutting down all its 553 retail stores nationwide and filed for bankruptcy after experiencing a slowdown in recent years that negatively affected the firm’s sales and liquidity.
Businesses are experiencing liquidity issues amid an environment of high interest rates that have made loans very expensive.
Federal fund rates have remained
unchanged from a range of 5.25–5.5 percent for more than a year. As a result, businesses are forced to take loans at higher interest rates or are unable to secure debt at desired rates.
In June, Federal Reserve officials had suggested a potential hike in interest rates if inflation were to remain high. This would make financing even more expensive for businesses.
Faced with financial difficulties like high interest rate loans, companies struggling to keep their operations running may end up finding themselves with no choice but to shut down.
Michael Hunter, vice president of bankruptcy data provider Epiq AACER,
said he is expecting to see “a strong and steady rise in bankruptcy filings across the board, reflecting ongoing financial pressures faced by both businesses and individuals,” according to an Aug. 5 press release.
“Based on current trends and economic indicators, I expect bankruptcy filing volumes to continue this steady increase throughout the remainder of 2024 and into 2025.”
S&P Global
pointed out that high interest rates and supply-chain issues have made it challenging for businesses to ensure enough cash flow to pay its debts and prevent loan defaults.
It expects rate relief to be “months away,” due to which many companies could seek reorganization bankruptcy in which firms undergo a reorganization of assets and liabilities under court supervision. This could provide businesses with the time necessary to stabilize their financial situation, S&P stated.
