Alright, I’m no veteran. But in my career I have learned one important tip… ALWAYS open Friday 8-k’s.
Why would a company file a “current report” that represents something “material” at Friday at 5pm? Hmmm. Seems obvious in hindsight, right? They don’t want people to focus on the said material item.
I’ve seen this a few times in my career. 9/10 times it’s benign. But one time it was a company disclosing a large loss on a hedge contract. Another it was an executive departure that gave a hint results would be bad. There’s more I can’t remember.
This time it’s Big Lots with an ominous signal! For future reference. I’m writing this at 5:30pm on a Friday after getting this notification in my inbox. While they are increasing the size of their credit facility by $300mm, to $900mm, they also are suspending the fixed charge covenant for a period of time. Hmmm
Now, Big Lots historically didn’t need a credit facility this large. But they just bought back a bunch of stock and, like other retailers, have bloated inventory now. They actually went from no debt, tons of cash, to $271mm drawn and limited cash.
The working capital is sucking liquidity, which just happened to Bed, Bath and Beyond. And now the latter is questionably solvent.
This could be a nothing burger. Or it could be an obvious sign that BIGs earnings will indeed suck like the rest of the space. That’s why they need to suspend the covenant. Perhaps they’d fail it otherwise.
I still think BIG will make it through this period and the stock will be higher in 5 years. But in the meantime… not a great sign.