Big Lots Reports First Quarter Results for First Quarter

June 7, 2024  by HFBusiness Staff in Business Strategy, Industry   

Net sales for the first quarter of fiscal 2024 totaled $1.009 billion, a 10.2% decrease compared to $1.124 billion for the same period last year. The decline to last year was driven by a comparable sales decrease of 9.9%. A net decrease in store count offset by a favorable sales shift due to the 53rd week in 2023 contributed approximately 30 basis points of sales decline compared to the first quarter of fiscal 2023.

Quarter One Highlights

• Q1 comparable sales decline due to challenging consumer environment; gross margins significantly improved year-over-year and continued reductions in adjusted operating expenses
• Q1 GAAP EPS loss of $6.99; adjusted EPS loss of $4.51
• Expect significant quarterly year-over-year gross margin rate improvements through 2024, with a path to positive comparable sales later in the year 
• On track to achieve 75% bargains penetration and, within that, 50% extreme bargains penetration by year-end
• Raising Project Springboard cumulative savings target in 2024; ahead of schedule to achieve most of the $200 million+ benefit by year-end 
• Ended Q1 with $289 million of liquidity, including availability under the company's new $200 term loan facility
   

Commenting on today's results announcement, Bruce Thorn, President and CEO of Big Lots stated, "While we made substantial progress on improving our business operations in Q1, we missed our sales goals due largely to a continued pullback in consumer spending by our core customers, particularly in high ticket discretionary items. We remain focused on managing through the current economic cycle by controlling the controllables.  As we move forward, we're taking aggressive actions to drive positive comp sales growth in the latter part of the year and into 2025, and to maintain year-over-year gross margin rate improvements, all driven by progress on our five key actions."

"Our operational initiatives to offer a larger assortment of new and exciting extreme bargains, cut costs, and increase productivity exceeded our targets in Q1. This enabled us to improve consumer perceptions about our brand and the value we offer, and to deliver a year-over-year improvement in gross margin and operating expenses, despite significant sales pressure.  As a reminder, our five key actions are to own bargains, to communicate unmistakable value, to increase store relevance, to win customers for life with our omnichannel efforts, and to drive productivity. We still have a lot of work ahead of us but remain confident that the five key actions are putting us on the right path to turn around our business."  

"We need to continue to elevate our brand relevance and drive more traffic, so we are moving quickly to achieve 75% bargain penetration and, within that, substantially grow our extreme bargain penetration to 50% by year-end.  Extreme bargains provide significant savings over price leaders and are working, as we've seen the sales trend shift from negative to solidly positive in several categories along with a better gross margin outcome.  And while most of our store base has healthy unit economics – with around 70% of our stores generating positive four-wall adjusted EBITDA - there are still a significant number of underperforming stores that we are working hard to address."

"A key part of that work is to realize most of the $200 million+ of bottom-line opportunities through Project Springboard this year and, on that front, we are ahead of schedule.  In fact, we are raising our target to $185 million of cumulative benefits by year-end, versus $175 million previously. Meanwhile, we are pleased with our actions to preserve and enhance liquidity in Q1, which included aggressive efforts to manage opex, capex and inventory, and the execution of a new $200 million term loan facility, which provides us with significant additional financial flexibility."

"While near-term conditions have been challenging, we're not slowing down on making progress to transform our business. The current financial performance does not yet reflect the stronger business model that we've created through our five key actions, but we expect the fruits of those efforts to become more apparent in the back half of the year."

A summary of adjustments to earnings (loss) per diluted share is included in the table below.

Inventory and Cash Management
Inventory ended the first quarter of fiscal 2024 at $949.9 million compared to $1.088 billion at the end of the first quarter last year, with the 12.7% decrease driven by lower on-hand units and average unit cost.

The company ended the first quarter of fiscal 2024 with $44.0 million of Cash and Cash Equivalents and $573.8 million of Long-term Debt under its lending facilities, compared to $51.3 million of Cash and Cash Equivalents and $501.6 million of Long-term Debt as of the end of the first quarter of fiscal 2023. 

Share Repurchases
The company did not execute any share repurchases during the quarter. The company has $159 million remaining under its December 2021 $250 million authorization.

Guidance
For the second quarter of fiscal 2024, the company expects comp sales to improve sequentially relative to the first quarter and to be down in the mid to high-single-digit range, as key actions to improve the business continue to gain traction. The company expects the gross margin rate to improve significantly versus the prior year, and be up by at least 300 basis points, driven by reduced markdown activity and benefits from Project Springboard efforts, resulting in a year-over-year improvement in gross margin. The company expects adjusted SG&A dollars to be down in the low to mid-single-digit percentage range versus 2023, including the impact of additional expense from the August 2023 sale and leaseback. The company does not expect to recognize any tax benefit in the second quarter as management expects to remain in a three-year cumulative loss position, which requires the company to record valuation allowances against deferred tax assets, including those related to net operating losses. The company is not providing EPS guidance at this point but expects its Q2 adjusted operating loss to be better than last year. The company expects a share count of approximately 29.3 million for the second quarter.

Conference Call/Webcast
The company will host a conference call, and an archive will be available on the Investor Relations section of the company's website at http://www.biglots.com/corporate/investors/ through midnight Thursday, June 20, 2024.

In addition, a replay of the call will be available through June 20 by dialing 877.660.6853 (Toll Free) or 201.612.7415 (Toll) and enter the Replay Conference ID: 13746656.