Big Lots stock was sinking Monday as a Loop Capital Markets analyst downgraded shares of the discount furniture retailer following a Bloomberg report that it is seeking new financing options.
Precarious Financial Situation
Loop Capital analyst Anthony Chukumba downgraded Big Lots stock to Sell from Hold on Monday, and cut his price target to $1 from $6.
“We think Big Lots’ financial situation is becoming increasingly precarious and find recent media reports the company has hired a turnaround consulting firm and is currently exploring financing options to be very concerning,” Chukumba said.
Seeking New Financing Options
Bloomberg reported on Friday that Big Lots has been reaching out to bankers and investors to assess market willingness for another loan, citing people familiar with the matter.
Addressing the Concerns
In response to a request for comment, Big Lots pointed to its Monday press release that said during the fourth quarter, the company generated “substantial cash flow,” which was used to pay down debt on its $900 million asset-based lending facility.
Asset-Based Credit Facility
Loop Capital’s Chukumba added that because the credit facility is asset-based, with borrowing availability tied to the value of Big Lots’ eligible inventory and credit card receivables, the company is “susceptible to a ‘death spiral’ if its suppliers begin to question the company’s viability and as a result tighten their credit terms.”
Shares of Big Lots were dropping 12% in premarket trading to $4.74, while S&P 500 futures are about flat. As of Friday’s close, the stock has fallen 68% over the last 12 months.
Impact of Inflation
Big Lots has felt the pain of inflation, as consumers have been less willing to spend on big-ticket furniture items due to higher prices and interest rates. Home sales have also been hit, lessening the need for shoppers to purchase new at home goods.
“Big Lots’ results have been in a veritable free fall in our view, as evidenced by 10 consecutive quarters of comparable sales declines and seven consecutive quarters of adjusted net losses,” Chukuma added.
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