Big Lots (BIG) has become one of my favorite discount store destinations, and I make several visits each year at a Pennsylvania and New Jersey location. It's a fun place to peruse - and I realize that is in the eye of the beholder - because they have a little bit of everything. It also has a good presence, with 1425 stores in the 48 continuous states.
However, this is a good example of "love the stores, but not the stock". Around this time last year, I was contemplating whether the stock was a "falling knife" or "diamond in the rough", and ultimately stayed on the sidelines.
That was a good move, as it turns out, because since then the shares have dropped another 58% and the company's fortunes have become even more precarious. One line of thinking I had was that BIG could do well in an inflationary environment as consumers sought cheap goods. Well, not so fast.
Second quarter revenue dropped 18% year/year, and the company lost $3.40/share, well below the -$1.82 consensus estimate. It also marked BIG's fifth consecutive quarterly loss. It does not get much better from here if you put any faith in analyst estimates: The company is expected to lose $9.69 this year (FY ended 1/24), and $5.38 next year.
BIG popped back onto my radar recently with the announcement of a sale and leaseback agreement, which is expected to generate net proceeds of $310 million. That figure got my attention given that BIG's current market cap is just $254 million. Market cap, however, does not tell the whole story.
In addition, the company ended its latest quarter with $502 million in debt, and that's not including operating lease liabilities. With $51 million in cash, BIG's enterprise value (market cap plus debt minus cash) is $705 million, not including operating leases. If you include operating leases, EV grows to $2.44 billion.
The sale and leaseback cash is a bit like a drop in the bucket, especially when you consider that the company is expected to lose money for at least this fiscal year and next. It may be a temporary shot in the arm, and extend BIG's runway a bit, but this remains a critical situation, unless BIG can turn things around in the near future.
Shares have actually been on the upswing recently. Since "bottoming" on June 1st at $4.87, BIG is up 79%. Adding intrigue, however, is short interest in the name, which stands at nearly 28%. Someone will make money on BIG from here, but whether it will be the shorts or longs remains to be seen.
The retail graveyard is littered with names. It's too soon to say whether BIG will be next, but I don't feel great about it as an investor. As a consumer, I am hoping they can turn it around.