Another discount retailer is now at high risk of bankruptcy after disclosing that it lost money in 2022, 2023 and in the first quarter of 2024.
Big Lots, a discount retailer that uses the treasure-hunt model with ever-changing merchandise, has more than 1,300 stores across the U.S.
In a recent Securities and Exchange Commission filing the company disclosed that it lost money in 2022, 2023 and in the first quarter of 2024.
At the time of the filing, the company had not breached its credit agreements, but it indicated that that might soon change.
The company said it expected “further operating losses” and “difficulty remaining in compliance with such covenants.”
Over the past year, Big Lots has sold some of its real estate, cut expenses and taken other steps to improve cash flow.
Those efforts may prove insufficient, according to the SEC filing.
“Based on our current cash and liquidity projections, and uncertainties with respect to the mitigating effect of management’s plans, the company has concluded there is a significant likelihood that it will be unable to comply with the Excess Availability Covenant under the 2022 Credit Agreement and the Term Loan Facility within the next 12 months, which raises substantial doubt about the company’s ability to continue as a going concern,” Big Lots wrote.
Falling out of compliance could trigger its loans being called and could force the company to file for Chapter 11 or even Chapter 7 bankruptcy, reports TheStreet.
Rapid Ratings uses publicly available data to track a company’s risk of default.
Companies use the service’s reports to gauge whether to do business with a company and/or what terms to operate under.
“We see significant concerns. Begin risk mitigation.
These companies are the weakest, and typically exhibit poor profits and weak balance sheets, resulting in high short-term default risk and lack of sustainability over the medium term,” Rapid Ratings wrote.
“Big Lots Inc. demonstrates weakness in liquidity and earnings performance but an adequate result in leverage.
Significant improvement in one or more of these areas is imperative,” Rapid Ratings added.
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Also Read: Another Mall Clothing Retailer Now At High Risk of Bankruptcy
Other Economy News Today
An essential company now files a surprising bankruptcy after miscalculating demand for its inventory after the Covid-19 pandemic.
Supply Source Enterprises, a leading provider of branded and private label cleaning products and personal protective equipment, on May 21 filed for Chapter 11 protection to seek a sale of its assets.
Supply Source brands include The Safety Zone and Impact Products.
The Guilford, Connecticut debtor listed $50 million to $100 million in assets in its petition and $180 million in funded debt, which includes $80 million owed on a term loan credit facility, $60 million owed on an asset-based loan, and about $40 million in unsecured debt.
Before the Covid-19 pandemic, which generated huge demand for cleaning supplies and personal protective equipment in 2020, Supply Source had been consistently profitable with stable single-digit growth, according to a declaration from the debtor’s Chief Restructuring Officer Thomas Studebaker.
Once the pandemic hit in 2020, the debtor had substantial growth due to high demand for safety, hygiene and sanitation products
The debtor reported adjusted Ebitda of $93 million in 2020 which was nearly a 300% increase over the previous year.
However, the company’s financial performance deteriorated in subsequent years.
Based on the unprecedented demand in 2020, the company commissioned an industry study in early 2021 that concluded that the Covid-19 pandemic would fundamentally change the cleaning supplies and protective equipment industry and market for its products.
The study also estimated that the company’s Covid-related growth would likely be sustained through 2024.
In contemplation of continued customer demand at elevated prices, based on the study’s data, the debtor increased purchases of inventory even though the costs were higher due to supply chain constraints during the pandemic.
Despite the study’s assurance that growth would be sustained for years, the pandemic’s positive effect on the market faded by the end of 2021 and demand for PPE decreased to normal rates, reports TheStreet.
The reduction in demand led to large amounts of excess inventory that the company could not sell in the same quantities and prices.
The excess inventory forced the debtor to secure additional storage space, which increased storage costs.
These factors tightened the company’s liquidity and led to a decline in annual revenue in 2023 by 26% from 2022, resulting in a negative 2023 Ebitda of $13 million.
The debtor’s liquidity issues led to it being overdrawn on its asset-based loan facility by $30 million.
The ABL lender in February 2024 swept the debtor’s bank accounts, further impacting the company’s financial distress.
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Also Read: This Massive Mall Retailer Is Now Closing In California
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