Big Lots, Inc. (BIG) Q1 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Net Sales $1.01 billion, a 10.2% decrease compared to $1.12 billion a year ago, driven by a comparable sales decrease of 9.9%.
Adjusted Net Loss $132.3 million, resulting in an adjusted diluted loss per share of $4.51.
Gross Margin Rate 36.8%, up 190 basis points year-over-year, primarily due to reduced markdowns and benefits from Project Springboard.
Adjusted SG&A Expenses $491.8 million, down 3.6% versus $510.5 million last year.
Adjusted Operating Margin Negative 11.9%.
Interest Expense $12 million, up from $9.1 million in the first quarter last year due to higher average amounts drawn on credit facilities and higher interest rates.
Total Ending Inventory Cost Down 12.7% year-over-year.
CapEx $15 million compared to $17 million last year.
Depreciation Expense $32 million, down from adjusted depreciation of $36 million last year.
Long-term Debt $573.8 million, up from $501.6 million a year ago.
Net Liquidity $289 million, higher than the $254 million in the fourth quarter.
Project Springboard Savings Target Raised to $185 million in cumulative savings by year-end, up from $175 million.
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Operating Highlights
Extreme Bargain Penetration: Achieved 28% of sales from extreme bargains in Q1, aiming for 50% by year-end.
New Product Launches: Launched Asia-based buying offices in April to enhance sourcing of extreme bargains.
New Categories: Introduced new categories such as home air filters, portable air conditioners, automotive, fitness, and stationery.
Market Positioning: Positioning as America's discount home store with a focus on extreme bargains.
Customer Value Perception: Improved net customer value perception score across all key trip types.
Cost Management: Aggressive management of OpEx, CapEx, and inventory to enhance liquidity.
Project Springboard: Raising cumulative savings target to $185 million by year-end, ahead of schedule.
Store Operations: Simplified store operation strategy focused on talent investment and operational excellence.
Five Key Actions: Focused on owning bargains, communicating value, increasing store relevance, enhancing customer experience, and driving productivity.
Store Count: Maintained 1,392 stores, with plans for three new openings in Q3 2024.
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Risk or Challenges
Consumer Spending Pullback: The company missed its sales goal due to a continued pullback in consumer spending, particularly in high-ticket discretionary items, as consumer confidence and sentiment declined.
Economic Environment: Concerns about inflation, unemployment, and interest rates have contributed to a softened consumer environment, impacting sales.
Declining Personal Savings: Personal saving rates have been declining while credit card balances have grown, indicating financial pressure on core consumers.
Underperforming Stores: Despite healthy unit economics in most stores, there are still a significant number of underperforming stores that the company is working to address.
High Assortment Mix Challenges: The high assortment mix in home furnishing categories has led to muted overall results, particularly due to a significant consumer pullback in big-ticket items.
Weather Impact: Weather challenges unfavorably impacted sales in February and April.
Competitive Pressures: The company faced fierce competition in food and consumables categories, leading to a deceleration in comps.
Interest Rate Increases: Interest expense increased due to higher average amounts drawn on credit facilities and rising interest rates.
Inventory Management: The company is aggressively managing inventory levels, which may impact sales if not executed effectively.
Economic Uncertainties: The company acknowledges significant challenges and uncertainties in the economic environment moving forward.
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Guidance & Outlook
Five Key Actions: 1. Own bargains: Targeting 75% bargain penetration and 50% extreme bargain penetration by year-end. 2. Communicate unmistakable value: Improved marketing efforts and customer perception. 3. Increase store relevance: Flexing assortment to capture customer demand. 4. Win customers for life: Enhancing customer experience through omnichannel strategies. 5. Drive productivity: Focus on cost reductions and operational efficiency.
Project Springboard: Raising cumulative savings target to $185 million by year-end, up from $175 million, with approximately $150 million expected to be incremental in 2024.
Extreme Bargains: Achieved 28% of sales from extreme bargains in Q1, aiming for 50% by year-end.
Liquidity Management: Increased net liquidity to $289 million, up from $254 million in Q4, through a new $200 million term loan facility.
Q2 Comp Sales Outlook: Expecting sequential improvement in comp sales to negative mid-to-high single digits.
Q2 Gross Margin Rate: Expecting at least 300 basis points year-over-year improvement in Q2.
CapEx Guidance: 2024 CapEx expected to be in line with or below 2023 levels, with three store openings planned for Q3.
Full Year Depreciation: Expected to be around $130 million, including approximately $32 million in Q2.
Inventory Management: Expecting total inventory to be down mid-single digits in Q2.
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Shareholder Return Plan
Shareholder Return Plan: The company has executed a new $200 million term loan facility to enhance liquidity and financial flexibility. Additionally, they are raising their target for cumulative benefits from Project Springboard to $185 million by year-end, which includes significant cost reductions and operational efficiencies.
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Key Q&A
Q:Can you quantify a category as a whole, the performance and comps between bargains, extreme bargains and then the rest of the box?
A:We're really excited about our continued penetration of extreme bargains, now at 28% at the end of Q1, with an annualized run rate of nearly $1 billion in closeout sales. We aim to reach 50% extreme bargains by year-end, targeting about a $2 billion annualized run rate.
Q:Is there any of the $200 million in assets that could be monetized left? Can you give us an update?
A:Part of that was included in the collateral for the FILO term loan. We still have a small number of owned stores valued around $20 million and some equipment in our Apple Valley California DC.
Q:Could you elaborate on the gross margin improvement throughout the year?
A:We expect gross margin rate improvement to accelerate from Q1 to Q2, with at least 300 basis points improvement in Q2. We anticipate significant gross margin rate improvement in the back half of the year due to lower markdowns and promotions.
Q:Does the positive comp later this year require any improvement in macro?
A:No, it doesn't assume any improvement or deterioration in the macro. The improvement is driven by extreme bargains, project springboard benefits, and reduced promotional headwinds.
Q:Can you help us better understand the health of your core customer? Did you witness any changes in their purchasing behavior during the quarter?
A:The core customer, particularly lower household income customers, are still pulling back on large discretionary items. Inflation and high fixed costs are impacting their spending, but we are starting to see some normalization and traction in Q2.
Q:How do you view supply for the remainder of the year? Are you seeing any areas where product is particularly attractive?
A:We see a robust opportunity to drive our closeout and extreme bargains. We have a strong pipeline and do not see increased competition at this point.
Q:Review of Unclear Management Responses
A:Management's response regarding the health of the core customer lacked clarity, particularly in terms of specific data on purchasing frequency and behavior changes.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
DC
FILO term
Goldman Sachs
Jordan
SKU count
action path
air
asset loan
assortment example
assortment mix
bargain box
bargain buyout
bargain deal
beverage
borrowing capacity
breadth depth
capacity FILO
capacity asset
card
component
core
date
end action
grocery
head
household
increase
loan facility
margin expansion
model
operation
patio furniture
project springboard
pullback
run rate
sentiment
target
term loan
ticket item
upholstery
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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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
