Pandemic Demand Still Up at Big Lots
Throngs of shoppers are continuing to hit Big Lots, with second quarter-to-date same-store sales through fiscal June increasing well ahead of expectations.
In a business update on Friday, the company said it now expects same-store sales to be up by a mid-to-high twenties percentage, which reflects anticipated moderation from quarter-to-date trends. The company expects adjusted diluted EPS, which excludes a gain of approximately $11 per share on the sale of its four distribution centers as part of the previously announced sale/leaseback transactions, to be in the range of $2.50 to $2.75, compared to 53 cents of adjusted diluted EPS for the second quarter of fiscal 2019. The outlook reflects an expected gross margin rate above last year and continued strong control of expenses, notwithstanding the inclusion of additional costs related to COVID-19.
With these positive business trends, and the recent closure of the sale/leaseback transactions, the company says it's in a very strong liquidity position, with current cash and short-term investments of approximately $890 million, and no amounts drawn on its $700 million revolving credit facility. The company's cash position does not yet reflect expected tax payments of approximately $170 million related to the sale/leaseback transactions. In addition, the company's cash position has been positively impacted by low inventory levels due to strong sales trends.
"We are very pleased with our quarter-to-date performance and our outlook for the full quarter," said Bruce Thorn, president and CEO of Big Lots. "Our assortment continues to resonate across all of our merchandise categories, while we continue to grow our customer base and accelerate sign-ups to our Big Rewards program. I could not be prouder of the incredible job our team continues to do in adapting and responding to the unprecedented challenges from the COVID-19 crisis. Our number one priority remains serving customers and communities in a safe and healthy environment. Looking forward, our strong performance over the past few months gives us growing confidence that we are well positioned to navigate through the upcoming quarters and beyond. In addition, our strong liquidity position will support our ability to return cash to shareholders through share repurchases, while continuing to invest in high-return growth initiatives under Operation North Star."
Earlier this month Big Lots took the first step in accelerating its e-commerce strategy by launching a partnership with Instacart.
The two companies have partnered to launch same-day delivery nationwide from nearly 1,400 Big Lots stores across all 47 states where the retailer operates. The new partnership brings Big Lots' closeout groceries and everyday essentials directly from the store to the customer's door. Beyond grocery, the launch also introduces a wide variety of home goods and décor to customers via the Instacart marketplace.
"We recognize people throughout the U.S. are depending on delivery now more than ever to get the household essentials and goods they need. We're proud to partner with Big Lots to deliver groceries alongside affordable items for every occasion, providing Big Lots customers with a quick and easy way to connect online with a retailer they love," said Chris Rogers, VP of retail at San Francisco-based Instacart. "This partnership enables customers to access the products and savings from Big Lots they've come to know, love and rely on — all delivered directly to their home."
In addition to all of Big Lots' grocery and pantry staples, customers shopping via Instacart will be able to select from a variety of Big Lots aisles, including home goods, kitchen and dining, beauty, pet, personal care, office and craft supplies, toys, and more.
"At Big Lots it's our mission to make big savings on home essentials accessible to our customers in the communities we serve. Our partnership with Instacart will bring our assortment of home goods, groceries and everyday essentials to customers online in a new way," said Erica Fortune, VP of e-commerce at Big Lots. "This announcement is another example of our commitment to offering exceptional value, surprising products and an easy shopping experience to families across the U.S."
Instacart partners with more than 350 national, regional and local retailers to offer delivery from 25,000-plus stores across more than 5,500 cities in the United States and Canada. The company's delivery service is currently available to more than 85% of households in the United States and more than 70% of households in Canada.
In May, Big Lots reported Q1 net income of $49.3 million, or $1.26 per diluted share, compared with adjusted net income of $37 million, or 92 cents per diluted share (non-GAAP), for the first quarter of fiscal 2019. The higher profits come even as the pandemic has resulted in the company's increasing wages and spending more money on store cleaning.
Net sales for the first quarter of fiscal 2020 totaled $1,439 million, an 11.1% increase compared with $1,296 million for the same period last year, with the growth resulting from an impressive 10.3% increase in same-store sales and sales growth from new and relocated non-comp stores.
"I am very proud of our team over the past quarter. We've grown as an organization through these unprecedented times, and it has been amazing to see the team step up our game," Thorn said. "We are off to a strong start in the second quarter, and believe we are well positioned to navigate through the ongoing COVID-19 crisis, with strong alignment between our assortment and current customer demand. Equally, we are very focused on ensuring sustainable improvements in our business beyond the crisis. We are applying the learnings of the last few months and continue to roll out our Operation North Star strategies to support our positioning as a go-to neighborhood discount retailer."
Big Lots, based in Columbus, Ohio, operates 1,404 retail stores. The company is No. 46 on The PG 100, Progressive Grocer’s 2020 list of the top food retailers in North America.