by They say a single death is a tragedy; multiple deaths are a sanitation problem. Here in the furniture sector, we have what increasingly looks like a garbage collectors’ strike, because the bodies are piling up.
Reading through more than 500 pages of Big Lots bankruptcy filings posted last week, the contrast between this Chapter 11 and the one down in The Woodlands is stark. Unlike the flea market/yard sale/dumpster fire consuming Conn’s and Badcock, the Big Lots plan at least keeps the lights on and the doors open. Most of them.
If the Conn’s denouement is negentropy, or a final point where nothing is possible, much less reversible, the Big Lots bankruptcy is entropy, or an openness to whatever might come to pass. Possibilities include a sale to private equity firm Nexus Capital Management, the stalking horse that agreed to buy Big Lots before the filing.
Since the filing, bankruptcy court has approved the chain’s post-petition financing of nearly $708 million, of which $35 million is provided in the form of new term loans. That financing has three primary purposes: Ensuring liquidity to keep some stores operating, shuttering some 300 locations and keeping the business vital enough to warrant the Nexus deal for “substantially” all of its assets.
The Delaware court approved immediate access for Big Lots to $550 million of that post-petition financing.
A week ago, Nexus agreed to acquire assets and operations as a “stalking horse bidder,” which, as I understand it, means much the same thing as a major league baseball team claiming a player off of waivers. In short, the player is most likely the club’s unless another team swoops in with a better offer.
And while Nexus’ transactions and private equity investments typically range from $50 million to $300 million, according to its website, the deal for Big Lots is on the order of $620 million, according to the filing in U.S. bankruptcy court in Delaware, an offer inclusive of the assumption of certain liabilities.
Not unimportantly, the financing will pay employees (there are nearly 10,000 full-time and about 20,000 part-time) and some “critical” vendors. According to the documents, “The company expects to pay vendors in full under normal terms for any goods delivered and services provided after the filing.”
The Nexus bid is subject to competition from other offers, if any are made, as well as court approval. If Nexus comes out on top, the parties say they will close the deal by the end of the year. A “second day” hearing for the court to consider Big Lots’ requested relief on a final basis is slated for Oct. 9.
Cue up the lease sales
Meanwhile, A&G Real Estate Partners announced that it will broker nearly 300 Big Lots store leases in 28 states, seeking to negotiate these leases for going concerns. Big Lots has roughly 1,300 locations in 48 states. The court approved sales for 144 of those 296 leases already, including 55 in California, leaving 152 for the court to consider going forward.
Andy Graiser, A&G’s co-president, said the locations represent those stores with “the greatest likelihood of serving customers going forward.”
The bid deadline for the initial leases is today at 5 p.m. Store sizes range from 18,000 to 58,400 square feet, according to A&G, which has posted the complete list of leases by location.
In making its filing, like Conn’s/Badcock, Big Lots cited the post-pandemic litany of challenges: inflation, interest rates and the conservation of discretionary spending by its core customers, particularly after Covid eased its deadly grip.
The 57-year-old chain’s “shift away from its longtime commitment to sourcing discounted products contributed to the company losing significant market share in its historically strong bargain merchandise vertical,” testified Jonathan Ramsden, chief financial and administrative officer, in the filing.
While the closeout specialist brought in about $4.7 billion in revenue in fiscal 2023, same-store sales have been in decline for years, and, as most players in the sector are painfully aware, the post-pandemic demand for furniture has been weak. Big Lots needs home furnishings and its big tickets, and its acquisition of the Broyhill brand and designs in 2019 is testimony. Shortly after snapping up the Broyhill name, CEO Bruce Thorn said the expectation was that it would grow to be a $1 billion brand.
According to the filing, the chain is carrying about $556 million in long-term debt after posting significant losses in recent quarters. In addition, sales have declined annually for three years, and the drops are becoming more steep: 1% in 2021, 11% in 2022 and 14% in 2023.
Stalking horsepower
If it becomes part of the Nexus portfolio, Big Lots will join FTD, Toms Shoes, Dollar Shave Club and Sugarbear vegan vitamins. Started up in Los Angeles in 2013 by Apollo Global Management veterans Michael Cohen and Damian Giangiacomo, Nexus is described by analysts as a long-term investor with experience in consumer-facing sectors, which is to say, retail.
“It’s a really good prospect for the company versus just a bunch of bottom feeders coming in and trying to get it at the absolute lowest price,” Seth Kleinman, a partner at Morrison & Foerster, told ModernRetail. “That said, Big Lots has many problems so there is a lot of work required to get it back on track.”
Fast Company has posted a list of Big Lots store closings. Gordon Brothers Retail Partners has been brought on to handle the chain’s GOBs.
“The store closing sales are critical for [Big Lots] to efficiently administer their estates during the pendency of these Chapter 11 cases,” according to the filing, “and assumption of the consulting agreement will allow [Big Lots] to continue to conduct the store closing sales in an efficient, controlled manner.”
Before we clear the gurney for the next major retail chain’s post-mortem and the hundreds of pages of court documents that will need to be studied, a few last takeaways from the Big Lots disclosures, in no particular order:
- The filing cites the abrupt shutdown of United Furniture Industries in November 2022 for exacerbating its post-Covid recovery efforts. When UFI ceased operations, it represented 6% of Big Lots purchasing, most of it then sold under the Broyhill name.
- As part of the DIP financing package, the amount of financing available to pay critical vendors both foreign and domestic is $40 million on an interim basis and $60 million total.
- The company spent 13 weeks seeking a buyer, assisted in that search by Guggenheim Securities. Twenty potential buyers were contacted, with 12 of those executing NDAs and doing due diligence.
- The chain’s BIG Rewards Program has 20 million active members who accounted for 75% of fiscal 2023’s total sales. That’s an incredibly high share of sales for any price level.
- As of the petition, Big Lots had just shy of 300 million shares of common stock and, as of June 7, approximately 30 million shares of common stock outstanding. The company joined the NYSE in 1986. The share price closed Monday at 89 cents. Ouch. And that was up from a low of 71 cents for the day.
- Among the assets Nexus could be buying are four regional distribution centers located in Alabama, California, Oklahoma and Pennsylvania. The company’s distribution center in Columbus, where it is based, will be closed, however, and its 400 employees laid off, according to a separate report.
- Since summer last year, Big Lots generated $306 million from sale-leasebacks executed by Blue Owl Capital, including leases on its distribution center in California and 23 store locations.
