Big Lots, Inc. (NYSE: BIG) has taken a decisive step to ensure its long-term viability by entering into a sale agreement with Nexus Capital Management LP. Under this agreement, Nexus will acquire most of Big Lots’ assets and business operations. To facilitate this transaction, the retailer and its subsidiaries have filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. This move is expected to provide Big Lots with the necessary financial stability to continue operations while it restructures its business and optimizes its footprint.
The Sale Agreement and Bankruptcy Filing
The sale agreement, referred to as the “Sale Agreement,” marks a significant turning point for Big Lots. The company’s decision to file for Chapter 11 bankruptcy is aimed at facilitating the smooth transfer of ownership and securing its future. Chapter 11 allows companies to restructure their debts and operations under court supervision while continuing to operate. During this process, Big Lots will remain operational, and customers can still shop at their nearest store or online at biglots.com.
Bruce Thorn, President and CEO of Big Lots, expressed confidence in the company’s future despite the challenges it faces. He highlighted the company’s commitment to providing customers with “unmistakable value and exceptional savings” while supporting local communities through its philanthropic efforts. According to Thorn, the agreement with Nexus will allow Big Lots to move forward with new owners who believe in the brand and its potential, providing the financial backing necessary to optimize operations and improve performance.
Thorn emphasized that the company’s core mission of helping customers “Live BIG and Save LOTS” remains unchanged. Even during the restructuring process, Big Lots is committed to offering extreme value bargains and an outstanding customer experience, both in-store and online. Thorn also expressed gratitude to the company’s associates for their dedication and hard work, as well as to the vendors who have supported Big Lots throughout this transition.
Nexus Capital’s Vision for Big Lots
Evan Glucoft, Managing Director of Nexus Capital, expressed enthusiasm about the partnership with Big Lots, stating that Nexus sees tremendous potential in the company. Glucoft noted that Big Lots is an iconic brand in the extreme value retail sector, and Nexus is eager to help restore the company’s status as a market leader. Nexus Capital believes that, with the right support and resources, Big Lots’ best days are ahead.
The partnership with Nexus comes at a time when Big Lots has been taking steps to accelerate its strategic initiatives. Like many other retailers, Big Lots has faced challenges in recent years, particularly due to macroeconomic factors such as inflation and rising interest rates. These economic conditions have put pressure on the company’s core customer base, leading to reduced discretionary spending on home and seasonal products, which are key revenue drivers for Big Lots.
Strategic Review and Store Optimization
In light of these challenges, Big Lots’ Board of Directors conducted a comprehensive review of the company’s strategic options. The board determined that the sale agreement with Nexus, along with the court-supervised sale process, represents the best path forward to maximize value for shareholders and ensure the company’s continued operations. This decision is seen as a way to protect the long-term viability of the company while addressing its financial challenges.
As part of the court-supervised sale process, Big Lots will continue to evaluate its operational footprint, including its store locations and distribution centers. The company has indicated that it will be closing additional store locations as it works to optimize its business. While the majority of Big Lots’ stores remain profitable, the company is focused on ensuring that its operations are as efficient as possible.
Thorn acknowledged the need for a more focused store footprint, stating that the company will use the tools available through the restructuring process to streamline its operations. By closing underperforming stores and optimizing its distribution model, Big Lots aims to improve its overall efficiency and better serve its customers.
Financial Arrangements and Court Approval
The sale agreement with Nexus Capital is subject to court approval and a court-supervised auction process under section 363 of the U.S. Bankruptcy Code. Nexus will serve as the “stalking horse bidder,” meaning that other potential buyers can submit higher or better offers during the auction process. If Nexus is the winning bidder, the transaction is expected to close in the fourth quarter of 2024.
In the meantime, Big Lots has secured $707.5 million in financing to support its operations during the restructuring process. This includes $35 million in new financing from its current lenders, as well as a post-petition credit facility. Once approved by the court, this financing, along with cash generated from ongoing operations, is expected to provide Big Lots with sufficient liquidity to continue operating while the sale process is completed.
Big Lots has also filed several motions with the court to ensure that it can continue its day-to-day operations without interruption. These motions seek approval to continue paying employee wages and benefits, as well as payments to critical vendors. The company expects to receive court approval for these motions and to continue paying vendors under normal terms for goods and services provided after the bankruptcy filing.
Preliminary Second Quarter 2024 Results
Despite the financial challenges facing the company, Big Lots has reported preliminary results for the second quarter of 2024 that align with its guidance. According to Thorn, the company’s comparable sales, gross margins, and operating expenses were in line with expectations. He also noted that Big Lots has seen sequential improvements in its comparable sales performance, as well as significant improvements in gross margins, particularly through its focus on extreme value offerings.
Thorn expressed optimism about the company’s performance in the third quarter, indicating that Big Lots has seen continued improvement in comparable sales and gross margins compared to the second quarter. He expects this positive momentum to carry through the remainder of the year, positioning Big Lots for a stronger financial performance in the second half of 2024.
NYSE Compliance Notice
In addition to the sale agreement and bankruptcy filing, Big Lots also announced that it has received a notice from the New York Stock Exchange (NYSE) regarding its non-compliance with listing requirements. Specifically, the company’s common shares have fallen below the $1.00 average closing price threshold over a consecutive 30 trading-day period. While this notice does not result in an immediate delisting, it highlights the financial challenges Big Lots has faced in recent months.
Moving Forward
As Big Lots navigates the restructuring process, the company remains focused on its core mission of providing extreme value to its customers. With Nexus Capital’s support, Big Lots aims to emerge from bankruptcy as a stronger, more efficient company, poised to regain its position as a leader in the extreme value retail space.
The road ahead may be challenging, but Big Lots is confident that the steps it is taking today will set the foundation for a successful future. With the continued support of its customers, employees, and vendors, Big Lots is determined to overcome its financial challenges and thrive in the years to come.
