Perhaps Angel of Death is a little strong, but AlixPartners has gotten a reputation as the consultant most likely to be called in when a company is about to go under…or at least file for bankruptcy. It doesn’t always play out that way but as with its recent encounter with Bed Bath & Beyond it’s often the case.
So the report from Bloomberg Law, unconfirmed by either party, that Alix has been called in by struggling big box retailer Big Lots to try to save it has to be viewed as troubling. If it’s not quite a Hail Mary it does come following much industry speculation and deep concerns from its suppliers that Big Lots is on the brink of something bad.
Certainly its recent financial results were not encouraging. This spring, reporting its first quarter, Big Lots had a net loss of $206.1 million, or $7.10 per share. This came as net sales for the period plummeted 18.3% to $1.1 billion from $1.4 billion for the same period a year ago.
Big Lots blamed it on the sudden closing of a big furniture supplier as well as the overall dismal state of the home furnishings sector which is still reeling from the massive consumer spending shift to out-of-home activities like travel and entertainment after a prolonged period of focus on making their homes nicer places to live. That helps explain the top line drop if not exactly the bottom line loss.
Big Lots has not named Alix as the one helping it fix itself but has said it is working with an “external partner” to identify cost savings. Apparently they are substantial, with the company saying this outside source found over $200 million in cost savings on top of the more than $100 million the company had already put in place, largely from closing four distribution centers.
More troubling could be the news that in July the retailer said it had completed a sale-and-leaseback arrangement for one distribution center and 26 retail stores. It said this would yield about $310 million in net proceeds, a sizeable amount although at its most recent burn-rate that would cover less than five months of operating losses. Selling physical assets and then leasing them back often provides a quick hit of cash but has often proven to be a poor strategy for long-term financial health.
AlixPartners bills itself as a turnaround specialist, “a results driven management firm…when it really matters” and it has successfully helped many companies, including in the retail sector. But it has also consulted for companies that did ultimately file for bankruptcy, some of which like Bed Bath & Party and Party City eventually went out of business.
Where Big Lots will end up remains to be seen. It reports its next financial results at the end of August. In the meantime investors do not appear to be overly optimistic: Big Lots stock is down about 50% since the start of the year and closed on Friday at $7.32 a share, off from its 52-week high of $25.88.
In a retail year that has already seen its fair share of casualties – besides BBB and Party City, the list includes Tuesday Morning, Christmas Tree Shops, David’s Bridal and Boxed among others – the environment is tough, particularly for those who are in the home products space. Whether Big Lots joins that group remains to be seen and certainly AlixPartners will try to work its magic to prevent that. But the latter’s history suggests that sometimes by the point it is called in, it’s already too late.
WarrensReport 