Dive Brief:
- Big Lots may now close up to 315 stores under amended credit and loan terms, according to an 8-K filed Friday with the U.S. Securities and Exchange Commission. Previous terms with lenders allowed it to close up to 150 under performing stores. In June, the company said it planned to close up to 40 stores.
- If the company moves to shutter the full number of stores allowed under the updated term sheet, that would represent a nearly 23% cut in the company’s store footprint, which was 1,392 locations as of June.
- Under the revised financial terms, Big Lots and its lenders agreed to reduce the company’s available credit to $800 million from $900 million. The interest rate on borrowing rose 50 basis points and Big Lots must also report more frequently to its lenders.
Dive Insight:
Big Lots’ decision to more than double the number of possible store closings comes less than two months after the retailer issued a going concern notice. At the time, Big Lots said it faced a liquidity crunch and net losses and that it used cash to fund some operating activities starting in 2022 and continuing into the first quarter of 2024.
"While the majority of our stores are profitable, we have made the difficult decision to close certain underperforming stores," a company spokesperson told Retail Dive in an email. "We are confident that the steps we are taking will best position the Company for the future as we return to our roots, focus on owning the bargain space, and deliver unmistakable value to our customers.”
Big Lots declined to confirm the total number of locations that it plans to shut down. But the spokesperson did say associates affected by a store closure can request a transfer to another Big Lots. The retailer also plans to offer severance pay to people who are unable to transfer to another store location.
Although the company has not published a full list of closures, locations that are going out of business display a “Closing This Location” banner at the top of their websites, along with a promotion for a 20% off sale.
“We support the proactive action to close underperforming stores that are a drag on the business,” analysts with Telsey Advisory Group, led by Joe Feldman, said in a Monday note. “However, we are incrementally worried by the need to close as many as 315 stores (22.6% of the total base of 1,392), which likely would require significant changes to the business model to continue as a going concern.”
During the last earnings call, CEO Bruce Thorn said the company needs “to continue to elevate our brand relevance to drive more traffic.” To achieve that goal, Thorn said Big Lots wants to grow its extreme bargain penetration to 50% by the end of the year.
Furniture comprised 29% of the company’s Q1 sales, followed by consumables at 17%. Soft home goods was 15% of the mix, followed by food at 14%. Thorn said that assortment mix is a challenge for the company because consumers spending on big ticket items remains soft, especially for furniture. The analysts agreed.
Telsey’s analysts estimate Big Lots could lose over $800 million in sales if the closing stores operate at about 80% productivity relative to the company’s average of $3.26 million in sales per store over the last 12 months. And after multiple quarters of losses, Big Lots’ balance sheet and cash flows remain tight, the analysts said. The company’s shuttering of stores and ongoing turnaround efforts also add incremental volatility, Telsey said.
“We believe Big Lots is in a tough spot, with its core lower to middle income consumers under incremental financial pressure and avoiding spending on discretionary products, especially big-ticket ones,” Feldman said.
Editor's note: This story has been updated with a response from Big Lots.
