Big Lots, Inc. (NYSE:BIG) Q3 2022 Earnings Call Transcript December 1, 2022
Big Lots, Inc. misses on earnings expectations. Reported EPS is $-2.99 EPS, expectations were $-2.94.
Alvin Concepcion: Good morning. This is Alvin Concepcion, Vice President of Investor Relations at Big Lots. Welcome to the Big Lots Third Quarter Conference Call. Currently, all lines are in a listen-only mode. As a reminder, this conference is being recorded. On the call with me today are Bruce Thorn, President and Chief Executive Officer; and Jonathan Ramsden, Executive Vice President, Chief Financial and Administrative Officer. Before starting today’s call, we would like to remind you that any forward-looking statements made on the call involve risks and uncertainties that are subject the company’s safe harbor provisions as stated in the company’s press release and SEC filings and that actual results can differ materially from those described in the forward-looking statements.
We would also like to point out that commentary today is focused on adjusted non-GAAP results. Reconciliations of GAAP to non-GAAP adjusted results are available in today’s press release. Third quarter earnings release, presentation and related financial information are available at biglots.com/corporate/investors. A question-and-answer session will follow the prepared remarks. I will now turn the call over to Bruce.
Bruce Thorn: Good morning, everyone, and thank you for joining us. The current environment continues to be challenging for our consumers. Inflation is at a 40-year high and consumer sentiment remains historically low. Household savings rates are below pre-pandemic levels as consumer have had to draw down on savings to fund current expenditures. Our customers being pinched and this pressure has been affecting discretionary purchases, especially for high ticket items across the retail industry. In particular, low income customers whom we serve have felt the most pain, and most are living paycheck-to-paycheck and racking up more debt. Our results have been affected by this pullback in demand for much of the year, and while this environment has been hard, we are responding in kind and fighting for our customers even harder.
Each quarter that goes by, we are learning and adjusting our assortments and promotions to meet her where we can. We are making good progress and we expect that to be increasingly evident as we go forward. In a challenged economic environment, it is important now more than ever to help our customers stretch their dollar even further. We see a tremendous opportunity to draw more trade down customers, leverage our deep experience in bargains and offer incredible value for our customers. We are taking this moment as an opportunity to strengthen our business model by creating a better shopping experience, offering even more deals, more exciting products, and making these bargains and treasures even easier to find. We have made some key hires with the new Chief Merchandising Officer and Chief Marketing Officer to bring these plans to life.
We remain focused on growing margin, reducing expenses, improving our liquidity, and making highly disciplined investment decisions. Our intent today is to cover the results and progress we’ve made in Q3, provide some comments on Q4 and describe how we’re tackling the current challenging environment and strengthening our business. Before going into that, I’d like to welcome Margarita Giannantonio as our new Chief Merchandising Officer and John Alpaugh as our new Chief Marketing Officer. I’m very excited for the leadership that Margarita and John bring to the table. Margarita is a deeply accomplished off-price retail industry leader with more than 30-years of experience in merchandising, sales, marketing, and product development and home, housewares and apparel categories.
She’s our first Chief Merchant in more than a decade to come from the off-price retail world. John’s background includes a deep and diverse set of experiences, among them brand positioning and launch, enterprise strategy, customer insights and analytics, e-commerce, market research and budget management. John has the strongest vision for how to message value that we’ve had since I’ve been here. They together will help us drive success in becoming our customers’ go to destination for bargains and treasures. Now on to the results. The third quarter marked another quarter in which we met the challenges of a tough environment head on, and did what we said we’d do, but we can’t say we’re happy with the results and we certainly need to do better they were in line with our guidance and in importantly, inventories continued to come down materially on a year-over-year basis.
We have tightly managed costs and have strengthened our balance sheet and liquidity position. I’d like to thank our team for their hard work as we punch our way through these tough economic times. Last quarter, we said we’d simplify our value offerings and communicate them better, offer more bargains, leverage our scale, and more deeply partner with our vendor partners to deliver compelling opening price points across our assortment. I’m pleased to say we made progress in all those areas. We have been reducing our opening price points to create unique deals. Through cost engineering and using our scale and relationships with suppliers, our opening price points in furniture are now at pre-COVID levels across more than 60% of SKUs. We expect nearly all of our furniture to see price revision in Q1 2023.
As it relates to bargains, which are closeout items, off-price brands and limited time deals, it remained a good environment for procurement. As we made meaningful progress towards rightsizing our inventories, our increased open to buy capacity has enabled us to procure 160% more bargains at retail, when compared to Q2 and about 90% more year-over-year. We procured great deals in categories such as toys, home appliances and soft home, and we continue to see great deals. We have good bargain purchase momentum going into 2023. Over the past month, we’ve made great purchases in toys for Mattel and other top toy brand vendors. Comforter sets from a major specialty store and accent pieces in furniture and black and decker small appliances. With regard to treasures, which are more unique, quirky, trendy and seasonal items, we created excitement with the Disney Pop-Up shop within the lot section in Q3 and had success with kids, hoodies, hand towels, aprons, mugs, and backpacks and purses.
In Q4, we are we are having early success in Grinch branded apparel and accessory items, novelty family sleepwear, giant candy bars, ugly holiday sweaters and leggings, and even a guitar with amplifier. And essentials which include category staples, we’ve cut about 1,700 unproductive SKUs. As an example, we carried six lines of neosporin and will now carry one. that only sell well during certain seasons will now only be available during the peak selling season rather than year round. We’re eliminating over 240 cosmetic SKUs that are high strength items. By reducing unproductive and duplicate SKUs, we’re able to offer her a more compelling and productive shopping experience. It also creates more room for more bargains. The productivity gains in Q3 will be used to fund more bargains, which will make our offer even more engaging particularly in food and consumable categories.
