Closeout retailer Big Lots has filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware in order to facilitate its sale to an affiliate of Nexus Capital Management. Nexus has agreed to acquire all of the retailer’s assets and ongoing business operations.
Nexus will now serve as the stalking horse bidder in a court-supervised auction that will allow for higher, or otherwise better, offers prior to court approval. If Nexus is deemed the winning bidder, the companies expect to close the transaction in Q4.
Big Lots plans to maintain all store and online operations throughout the process and has secured commitments for $707.5 million in financing, including $35 million in new financing from its current lenders, toward that purpose. The company said that it expects that this new financing, combined with cash generated from ongoing operations, will be enough to keep the retailer open throughout the sale process. Employee wages and benefits will continue to be paid as normal, and the company said it anticipates being able to pay vendors in full under normal terms.
Amid rumors of a potential bankruptcy that have now come to fruition, Big Lots shares took a beating on Sept. 6 after the company announced it was postponing the release of its fiscal Q2 2025 earnings report for the period ended Aug. 3, 2024. The company will now issue its earnings report on Sept. 12.
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Bruce Thorn, President and CEO of Big Lots, gave a preview of the Q2 results alongside the bankruptcy announcement: “Despite a challenging consumer environment and financial pressures facing our business, we are pleased to have achieved underlying comp sales, gross margin and operating expenses in line with our guidance,” he said in a statement. “Underlying comp sales improved sequentially relative to Q1 on a year-over-year basis and gross margins significantly improved, driven in part by advancing our five key actions, particularly through increasing our extreme bargain offerings. Additionally, Q3 to-date is off to a good start, with a significant sequential improvement in underlying comp sales relative to Q2, as well as underlying gross margin expansion versus last year. We expect the positive momentum to continue into the back half of the year.”
Big Lots Struggles to Recover Post-Pandemic
Big Lots operates nearly 1,400 stores in 48 states, with key product categories including furniture and home goods, food and seasonal items, but the company has struggled to find its footing since the pandemic. Big Lots pointed specifically to “macroeconomic factors such as high inflation and interest rates that are beyond its control” impacting its recent performance, which has been less than stellar.
For Q1 2024, which ended May 4, 2024, Big Lots saw a 9.9% decrease in comp sales compared to the same period in 2023. Net sales also fell 10.2% in Q1 2024 compared to Q1 2023, dropping from $1.12 billion to $1 billion. In April the company increased its borrowing capacity in an effort to shore up the business, and in early August the company received court approval to close as many as 315 stores. The company also was recently notified by the New York Stock Exchange that it had fallen out of compliance, with a share price of less than one dollar for more than 30 days.
“The prevailing economic trends have been particularly challenging to Big Lots as its core customers curbed their discretionary spending on the home and seasonal product categories that represent a significant portion of the company’s revenue,” explained the company in a statement about its decision to sell.
Additional Big Lots Store Closures Likely
While Big Lots’ underlying performance has been improving, as evidenced by the hopeful Q2 and Q3 sales preview, the retailer’s board of directors still determined that the sale to Nexus was the best path forward. Big Lots said it is continuing to assess its operational footprint throughout the sale process and anticipates the closing of additional stores as well as “optimization” of its distribution center model.
“Though the majority of our store locations are profitable, we intend to move forward with a more focused footprint to ensure that we operate efficiently and are best positioned to serve our customers,” said Thorn. “To accomplish this, we intend to use the tools afforded by this process to continue optimizing our store fleet in an orderly manner.
“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,” Thorn added.
“We are excited to have the opportunity to partner with Big Lots and help return this iconic brand to its status as America’s leading extreme value retailer,” said Evan Glucoft, Managing Director of Nexus in a statement. “The Big Lots business has incredible potential and we are confident that its greatest days are ahead.”
