Big Lots Misses Sales Plan by $100M

Although its first quarter of fiscal 2022 got off to a solid start, trends slowed down in April for Big Lots, Inc. The discount retailer reported a net loss of $11.1 million, or $0.39 per share, for the first quarter ended April 30, which compares to the company's guidance provided on March 3 of $1.10 to $1.20 net income per diluted share. Net income for the first quarter of fiscal 2021 was $94.6 million, or $2.62 per diluted share.

Net sales for its first quarter totaled $1.37 billion, a 15.4% decrease compared to $1.63 billion for the same period last year, and an increase of 6.1% compared to the first quarter of 2019. The decline to last year was driven by a comparable sales decrease of 17.0%, as Big Lots lapped an 11.3% comparable sales increase last year. Net new stores and relocations contributed approximately 160 basis points of sales growth.

"Our business has grown significantly over the past two years as we benefitted not only from home-related spending but from the positive growth fueled by our Operation North Star initiatives,” said Bruce Thorn, president and CEO of Big Lots. “We have greatly improved our customer shopping experience, evidenced by an all-time high Net Promoter Score of 85% in Q1. E-commerce remains a standout, and now accounts for over 7% of our sales, with same-day deliveries growing 20% over last year. Our Broyhill and Real Living private label brands reached close to 30% of our sales, positioning us well to pursue consumer trade-down opportunities ahead.”

These accomplishments helped get three-year comparable sales growth off to a solid start in February and March, but trends materially slowed in April, resulting in a need to increase markdowns. "We believe the slowdown was caused by the spending pressure our consumers felt from higher gas prices and broader inflation, which is affecting discretionary purchases across the retail industry," said Thorn. "We felt the early brunt of this due to our lower-income customer being the most immediately affected.”

As a result, Big Lots missed its sales plan by approximately $100 million, the vast majority in April while supply chain impacts across gross margin and SG&A continued to see significant headwinds.

"We have reacted quickly to the changes in consumer demand by increasing value offerings to our customers, resulting in a significant acceleration to three-year comparable sales growth in the mid-teens in May," commented Thorn. "We expect the environment to remain challenging and we remain highly focused on managing the business prudently, which includes aggressively right-sizing our inventories over the course of Q2. We are focused on opening price points that drive traffic and improving gross margin rates through capitalizing on significant close-out opportunities, more targeted pricing and promotions, minimizing supply chain charges and reducing shrink.”

In regards to being more targeted and efficient with pricing and promotions, Thorn said the company’s early work in food and consumables indicated a $20 million annualized gross margin opportunity that they are already actioning.

Big Lots is also taking aggressive actions to improve gross margin rate in the back half of the year. Thorn even indicated that the company is currently reengineering product with its ecosystem of vendors to allow for good price points and better margin down the road. As a result, Big Lots expects to achieve significant sequential improvement in third quarter, with a fourth quarter that is approximately in-line with the prior year quarter.

With inventory ending the first quarter 48.5% higher than same period last year, Big Lots is in the midst of rolling out a new tool that will enhance inventory flow to both support sales and drive down costs. The company expects inventory levels to reduce significantly during the second quarter.

Other actions being taken include temporarily scaling back capital expenditures associated with new store openings and remodels, and accelerating SG&A cost reductions to generate over $70 million in additional savings this year.

Given an atypically wide range of outcomes, the discount retailer is not providing EPS guidance at this point. Big Lots expects a share count of approximately 28.6 million for second quarter.

“Continuing to delight our customers, regardless of economic conditions, is key to unlocking the full potential of Operation North Star, which we continue to believe will drive long-term sales potential of $8 to $10 billion with a 6% to 8% operating margin," said Thorn.

Columbus, Ohio-based Big Lots operates over 1,400 in 47 states, as well as an e-commerce platform with expanded capabilities via BOPIS, curbside pickup, Instacart and same-day delivery across thousands of items. The company is No. 52 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.