Big Lots, Inc. (BIG) Q4 2023 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects mixed signals. While there are improvements in gross margin and inventory management, net sales have declined, and the company faces challenges in achieving positive comparable sales. The Q&A session reveals optimism in turnaround strategies, but management's vagueness on timelines and financial specifics tempers expectations. The market may remain cautious, leading to a neutral stock price movement.
Key Financial Performance
Net Sales $1.43 billion, a 7.2% decrease compared to $1.54 billion a year ago, driven by a comparable sales decrease of 8.6%. The impact of the 53rd week benefited Q4 sales by approximately $67 million, offset by a net reduction in store count.
Adjusted Net Loss $8.3 million, resulting in an adjusted diluted loss per share of $0.28.
Gross Margin Rate 38.0%, up 170 basis points from last year, driven primarily by a reduced level of markdowns and lower freight costs.
Adjusted SG&A Expenses $543.4 million, down 3.5% versus $563.2 million last year, driven by multiple line items and initial benefits from Project Springboard.
Interest Expense $10.8 million, up from $7.4 million in the fourth quarter last year, due to higher average amounts drawn on credit facility and higher interest rates.
Total Ending Inventory $953.3 million, down 17% compared to last year, driven by lower on-hand units and lower in-transit inventory.
CapEx $18 million, compared to $32 million last year, resulting in approximately $63 million for the full year, down almost 60% from last year.
Depreciation Expense $34.1 million, down from $43.4 million last year.
Long-term Debt $406.3 million, a reduction from $533 million in the third quarter.
Full Year Sales $4.7 billion, down 13.5% on a comparable basis to 2022.
Adjusted Operating Loss $342.7 million, compared to a 2022 adjusted operating loss of $210 million.
Net Liquidity $254 million at the end of the fourth quarter, similar to Q3.
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Operating Highlights
New Product Offerings: Big Lots has introduced a new collection of Hearthsong Toys valued at over $22 million, offering them at extreme bargain prices ranging from 50% to 70% less than original retail.
Assortment Expansion: The company is expanding its assortment of extreme bargains, particularly in food and consumables, and has seen strong sell-through on items such as coffee, cereal, hair care, bedding, laundry, and cookware.
Market Positioning: Big Lots aims to solidify its position as America's discount home store by increasing bargains penetration to 75% of sales and enhancing the customer experience through omnichannel efforts.
Store Count Changes: In Q4, Big Lots opened three new stores and closed 39, ending with 1,392 stores.
Cost Reduction: The company took out over $140 million of SG&A during the year and cut CapEx by almost 60% year-over-year.
Inventory Management: Big Lots reduced inventory by nearly $200 million, ending Q4 with a total inventory cost down 17% year-over-year.
Project Springboard: The company is targeting an incremental benefit of around $140 million in 2024 from Project Springboard, which aims for at least $200 million of cumulative benefits.
Omnichannel Strategy: Big Lots launched its first mobile app and added Uber Eats to its marketplace partners to enhance customer engagement and improve the shopping experience.
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Risk or Challenges
Macroeconomic Environment: The company is facing a challenging macroeconomic environment, which includes uncertainties related to an election year and fluctuations in interest rates.
Supply Chain Disruptions: Potential supply chain disruptions, particularly noted as the Red Sea, could impact operations.
Competitive Pressures: The company is experiencing competitive pressures, particularly in the hard home category, which has led to gaps in inventory assortment and fewer bargain offerings.
Store Count Reduction: The net reduction in store count has had an unfavorable impact on sales growth, contributing approximately 290 basis points to the sales decline.
Inventory Management: The company has reduced inventory significantly, but gaps in inventory assortment in certain categories could hinder sales performance.
Interest Expense: Interest expense has increased due to higher average amounts drawn on the credit facility and rising interest rates, impacting overall financial performance.
Economic Factors: The company anticipates continued challenges in 2024, including economic factors that may affect consumer spending and overall business performance.
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Guidance & Outlook
Five Key Actions: The company is focusing on five key actions: owning bargains, communicating unmistakable value, increasing store relevance, winning customers for life with omni-channel efforts, and driving productivity.
Project Springboard: The company aims to realize over $200 million in bottom line opportunities through Project Springboard, targeting an incremental benefit of around $140 million in 2024.
Bargains Penetration: The company plans to grow bargains penetration to 75% of sales, with an expanded assortment of extreme bargains.
Cost Management: The company has cut over $140 million in SG&A, reduced CapEx by almost 60%, and monetized assets worth over $300 million.
2024 Gross Margin Improvement: The company expects quarterly year-over-year gross margin improvements to continue in 2024, with Q1 gross margin rate expected to improve by 200-250 basis points.
Q1 Comp Sales Guidance: The company anticipates sequential comp sales improvement in Q1, projecting negative mid-single digit range.
CapEx Guidance: CapEx for 2024 is expected to be in line with or somewhat below 2023, with necessary IT investments offsetting lower store openings.
Liquidity Position: The company ended Q4 with $254 million in net liquidity and plans to evaluate further actions to bolster liquidity.
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Shareholder Return Plan
Share Repurchase Program: The company has not announced any share buyback program during the call.
Dividend Program: There was no mention of a dividend program in the transcript.
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Key Q&A
Q:Can you talk a little bit more about the categories that you're the most optimistic about in helping to drive improvements in the results?
A:We expect quarterly year-over-year improvements to continue, driven by our 5 points forward, including lawn and garden seasonal products, furniture, and everyday essentials. We're excited about new products and the growth of our extreme bargains.
Q:How do you expect ticketing traffic to evolve as drivers in 2024?
A:Traffic was the primary driver of our comp trend evolution during 2023, and we anticipate continued sequential improvement in traffic trends along with our overall comp trends through 2024.
Q:What are you seeing from inflation, deflation happening within the mix right now?
A:We're getting AUCs down significantly, which gives us more flexibility on AURs. However, there are mix effects that create noise around interpreting year-over-year changes in AUR.
Q:Can you talk about the cadence of the year and when you expect to turn positive in comps?
A:We expect continued sequential improvement in comps through the year and aim to turn positive, but we're not calling when that will be.
Q:Can you define the difference between bargains and extreme bargains?
A:A typical bargain is priced significantly below most retailers, while extreme bargains are priced significantly below price leaders. The perception of what constitutes a bargain can vary by category.
Q:Is there any gross margin difference between extreme bargain product sales and the rest of the product sales?
A:Overall, we expect extreme bargains to be accretive on a gross margin rate basis, particularly in food and consumables.
Q:Review of Unclear Management Responses
A:Management did not provide a specific timeline for when they expect to turn positive in comps, stating they are shooting to get there as quickly as possible but not calling when that will be. Additionally, there was some vagueness in the explanation of how inflation and deflation are impacting their overall AUR due to mix effects.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AUCs
AUR
AURs
Advisory Group
Bargains
Christmas item
Feldman Telsey
Friday
Telsey Advisory
United Furniture
action progress
asset liquidity
bargain area
bargain assortment
bargain price
basis sale
build deal
case food
center closure
channel
deal flow
decor pantry
deflation
distribution center
flow value
halo effect
heritage value
impact
intermediary
lot mix
noise
opening price
order
place
product bargain
sale assortment
sell
stock
BIG Transcript
Big Lots, Inc. (BIG) Q1 2024 Earnings Call Transcript
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The earnings call presents a mixed outlook. Financial performance is weak, with a 10.2% decline in net sales and a significant net loss. However, there are positive aspects like improved gross margins and cost management through Project Springboard. The Q&A highlights a robust closeout environment and the potential for margin improvements, but challenges remain with macroeconomic factors and consumer sentiment. Overall, the sentiment is neutral as positives and negatives balance each other out.
Big Lots, Inc. (BIG) Q4 2023 Earnings Call Transcript
Unknown3-7
The earnings call reflects mixed signals. While there are improvements in gross margin and inventory management, net sales have declined, and the company faces challenges in achieving positive comparable sales. The Q&A session reveals optimism in turnaround strategies, but management's vagueness on timelines and financial specifics tempers expectations. The market may remain cautious, leading to a neutral stock price movement.
BIG Report
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