Financial Data and Key Metrics Changes - Q4 net sales were $1.732 billion, a 0.3% decrease compared to $1.738 billion a year ago, but up 7.8% compared to Q4 2019 [43] - Adjusted earnings per share for the quarter was $1.75, down from $2.59 last year [43][54] - Gross margin rate for the quarter was 37.3%, down approximately 210 basis points from last year's rate [44] - Total ending inventory was up 32% to last year at $1.238 billion, ahead of guidance due to higher in-transit inventory [48] Business Line Data and Key Metrics Changes - Broyhill accounted for approximately $140 million in Q4 sales, up 7% over the same quarter in 2020 [16] - Real Living sales increased over 20% versus Q4 of last year [16] - Furniture sales experienced a drop due to inventory availability, but the company is now in a better inventory position for Broyhill upholstery and mattresses [37] Market Data and Key Metrics Changes - The company opened 16 new stores and closed nine stores, ending Q4 with 1,431 stores [48] - The company expects to meet or exceed 50 net new stores in 2022, targeting margin accretive stores with 10% EBITDA returns [20] Company Strategy and Development Direction - The company aims to grow top-line sales by several billion dollars through merchandising productivity, real estate growth, and e-commerce [8] - The focus is on enhancing the customer experience through improved inventory management and seasonal offerings [15][21] - The company is committed to operational excellence and shareholder value through strategic investments and growth initiatives [7][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth potential despite near-term challenges, targeting sales of $8 billion to $10 billion in the coming years [31][62] - The company anticipates a flat comparable sales growth for 2022, with net new stores contributing to overall growth [95][96] - Management acknowledged the impact of supply chain disruptions and inflation on costs and margins, with plans to address shrink issues [70][82] Other Important Information - The company returned approximately $460 million to shareholders in 2021 through dividends and share repurchases [51] - The average cost of the Project Refresh program is just over $100,000 per store, aimed at enhancing the in-store experience [27] Q&A Session Summary Question: Can you discuss the improved sales momentum in February and its impact on inventory planning? - Management noted a significant recovery in February compared to January, with plans to be heavier on seasonal and furniture inventory [65][66] Question: What drove the SG&A dollar growth and the expected improvement in gross margins? - Management indicated that the higher SG&A was due to structural changes and transitory issues, with expectations to reduce shrink rates over the year [69][70] Question: Can you explain the inventory and shrink situation? - Management detailed that the spike in shrink was influenced by external factors, particularly in California, and outlined steps to mitigate these issues [76][79] Question: What is the outlook for close-out sales and availability? - Management confirmed that close-outs are becoming a larger part of the business, with good availability in certain categories [85][86] Question: How is the furniture category performing and what are the expectations moving forward? - Management reported strong sales in furniture, particularly with the Broyhill brand, and expressed confidence in recovering inventory levels [90][91]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 001-08897 BIG LOTS, INC. (Exact name of registrant as specified in its charter) Ohio 06-1119097 (Stat ...

Financial Data and Key Metrics Changes - Net sales for Q3 were $1.336 billion, a 3.1% decrease compared to $1.378 billion a year ago, but up 14.4% compared to Q3 2019 [45] - The net loss for Q3 was $4.3 million compared to a net income of $29.9 million in Q3 2020, with EPS at a loss of $0.14 [46] - Gross margin rate for Q3 was 38.9%, down 160 basis points from last year's rate and 80 basis points below 2019 [47] - Total expenses for the quarter were $523 million, up from $515 million last year, driven by incremental investments in labor and forward distribution centers [48] Business Line Data and Key Metrics Changes - Comparable sales increased 12% on a two-year basis, while total sales increased over 14% versus 2019 [7] - Furniture delivered strong performance with two-year comps up low double-digits, while Seasonal comps were over 30% on a two-year basis [10] - Consumables experienced single-digit, two-year growth, with food down mid-single-digits due to strategic reduction in square footage [10][101] Market Data and Key Metrics Changes - The company opened 9 new stores and closed 3, ending Q3 with 1,424 stores and total selling square footage of 32.5 million [52] - Year-to-date e-commerce sales growth was around 300% compared to 2019, with expectations for e-commerce to become a billion-dollar business in the coming years [31] Company Strategy and Development Direction - The company is focused on three key drivers for growth: same-store sales growth, accelerated store footprint growth, and scaling e-commerce operations [19] - A new $250 million share repurchase program was authorized, reflecting confidence in the company's growth story [5] - The company plans to enhance its merchandise assortment and expand its seasonal offerings to drive sales [20][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the fourth quarter despite supply chain challenges, anticipating high sell-through of holiday merchandise [11] - The company expects to face negative comps in Q1 2022 due to the lapping of stimulus effects but anticipates overall sales growth for the year [18] - Management highlighted the importance of supply chain investments to improve product availability and efficiency [92] Other Important Information - The company declared a quarterly cash dividend of $0.30 per common share, payable on December 29, 2021 [56] - Capital expenditures for the quarter were $46 million, with full-year expectations between $170 and $180 million [66] Q&A Session Summary Question: Can you talk about the supply chain challenges and sales cadence in Q4? - Management noted ongoing supply chain difficulties, particularly in Asia, but emphasized successful mitigation efforts to ensure holiday inventory availability [71][73] Question: What are the return metrics targeted for new stores? - The company expects new stores to achieve a 10% or greater 4-wall EBITDA margin, with internal rates of return ideally in the mid-20s [78] Question: How is the Food and Consumables strategy evolving? - Management indicated a focus on refining the food assortment to enhance productivity, despite not seeing positive comps in the last quarter [100][104]

Part I. Financial Information [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's unaudited consolidated financial statements detail its operational results, financial position, and cash flows [Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This statement outlines the company's revenues, expenses, and resulting net income for the specified periods Consolidated Statements of Operations and Comprehensive Income (Unaudited) | Metric | Thirteen Weeks Ended July 31, 2021 ($ in thousands) | Thirteen Weeks Ended August 1, 2020 ($ in thousands) | Twenty-Six Weeks Ended July 31, 2021 ($ in thousands) | Twenty-Six Weeks Ended August 1, 2020 ($ in thousands) | | :------------------------------------------------------- | :---------------------------------------------------- | :--------------------------------------------------- | :---------------------------------------------------- | :--------------------------------------------------- | | Net Sales | 1,457,374 | 1,644,197 | 3,082,926 | 3,083,346 | | Gross Margin | 577,797 | 683,564 | 1,231,744 | 1,254,320 | | Operating Profit | 53,850 | 608,643 | 176,402 | 683,078 | | Net Income and Comprehensive Income | 37,707 | 451,972 | 132,270 | 501,295 | | Basic EPS | 1.11 | 11.52 | 3.81 | 12.79 | | Diluted EPS | 1.09 | 11.29 | 3.75 | 12.66 | | Cash Dividends Declared per Common Share | 0.30 | 0.30 | 0.60 | 0.60 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity Consolidated Balance Sheets (Unaudited) | Metric | July 31, 2021 ($ in thousands) | January 30, 2021 ($ in thousands) | | :--------------------------------------- | :----------------------------- | :------------------------------ | | Cash and Cash Equivalents | 293,322 | 559,556 | | Inventories | 943,776 | 940,294 | | Total Current Assets | 1,379,164 | 1,585,789 | | Total Assets | 3,822,725 | 4,037,257 | | Total Current Liabilities | 959,613 | 1,000,624 | | Long-term Debt | — | 35,764 | | Total Shareholders' Equity | 1,153,369 | 1,277,731 | | Total Liabilities and Shareholders' Equity | 3,822,725 | 4,037,257 | [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) This statement details the changes in the company's equity accounts over the specified period Consolidated Statements of Shareholders' Equity (Unaudited) - Twenty-Six Weeks Ended July 31, 2021 | Metric | January 30, 2021 ($ in thousands) | July 31, 2021 ($ in thousands) | | :---------------------------------- | :------------------------------ | :----------------------------- | | Balance | 1,277,731 | 1,153,369 | | Comprehensive Income | 132,270 | 132,270 | | Dividends Declared | (21,817) | (21,817) | | Purchases of Common Shares | (257,818) | (257,818) | | Share-based Employee Compensation Expense | 22,944 | 22,944 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement reports the cash generated and used by operating, investing, and financing activities Consolidated Statements of Cash Flows (Unaudited) - Twenty-Six Weeks Ended | Metric | July 31, 2021 ($ in thousands) | August 1, 2020 ($ in thousands) | | :------------------------------------------ | :----------------------------- | :------------------------------ | | Net Income | 132,270 | 501,295 | | Net Cash Provided by Operating Activities | 142,158 | 468,384 | | Net Cash (Used in) Provided by Investing Activities | (77,086) | 517,586 | | Net Cash Used in Financing Activities | (331,306) | (140,131) | | (Decrease) Increase in Cash and Cash Equivalents | (266,234) | 845,839 | | Cash and Cash Equivalents: End of Period | 293,322 | 898,560 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide supplementary information and disclosures related to the consolidated financial statements [NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The company operates as a neighborhood discount retailer with 1,418 stores and an e-commerce platform - As of July 31, 2021, Big Lots, Inc operated **1,418 stores** in 47 states and an e-commerce platform[15](index=15&type=chunk) - In year-to-date 2021, Big Lots realigned its merchandise categories, renaming 'Electronics, Toys, & Accessories' to 'Apparel, Electronics, & Other' and reclassifying several departments to better align with management reporting[22](index=22&type=chunk)[23](index=23&type=chunk) Warehousing, Distribution, and Outbound Transportation Costs | Period | 2021 ($ in millions) | 2020 ($ in millions) | | :------- | :------------------- | :------------------- | | Q2 | 71.9 | 59.7 | | YTD | 138.1 | 112.0 | Advertising Expenses | Period | 2021 ($ in millions) | 2020 ($ in millions) | | :------- | :------------------- | :------------------- | | Q2 | 21.9 | 21.9 | | YTD | 43.8 | 44.8 | [NOTE 2 – DEBT](index=10&type=section&id=NOTE%202%20%E2%80%93%20DEBT) The company maintains a $700 million credit facility and prepaid its remaining term note in June 2021 - As of July 31, 2021, Big Lots had **no borrowings outstanding** under its $700 million unsecured credit facility, with **$690.9 million available**[27](index=27&type=chunk) - The company prepaid the remaining **$44.3 million principal balance** of the 2019 Term Note on June 7, 2021, incurring a $0.4 million prepayment fee and recognizing a **$0.5 million loss** on debt extinguishment[28](index=28&type=chunk) Total Debt | Instrument | July 31, 2021 ($ in thousands) | January 30, 2021 ($ in thousands) | | :----------- | :----------------------------- | :------------------------------ | | 2019 Term Note | — | 50,264 | | Credit Agreement | — | — | | **Total Debt** | **—** | **50,264** | [NOTE 3 – FAIR VALUE MEASUREMENTS](index=11&type=section&id=NOTE%203%20%E2%80%93%20FAIR%20VALUE%20MEASUREMENTS) The company's investments in money market and mutual funds are recorded at fair value using Level 1 inputs Fair Value of Investments (July 31, 2021) | Asset | Balance Sheet Location | Fair Value ($ in thousands) | | :---------------------------------- | :----------------------- | :-------------------------- | | Money market funds | Cash and cash equivalents | 35,038 | | Mutual funds - deferred compensation plan | Other current assets | 27,354 | Fair Value of Investments (January 30, 2021) | Asset | Balance Sheet Location | Fair Value ($ in thousands) | | :---------------------------------- | :----------------------- | :-------------------------- | | Money market funds | Cash and cash equivalents | 175,113 | | Mutual funds - deferred compensation plan | Other Assets | 32,484 | [NOTE 4 – SHAREHOLDERS' EQUITY](index=12&type=section&id=NOTE%204%20%E2%80%93%20SHAREHOLDERS'%20EQUITY) The company executed share repurchases under a $500 million program and paid consistent quarterly dividends - The Board of Directors authorized a **$500 million share repurchase program** on August 27, 2020, with no scheduled termination date[37](index=37&type=chunk) - As of July 31, 2021, **$96.8 million was available** for future repurchases under the 2020 Repurchase Authorization[38](index=38&type=chunk) Common Shares Repurchased (Year-to-Date 2021) | Period | Number of Shares Repurchased (in thousands) | Amount of Repurchased Shares (in thousands) | | :--------------- | :---------------------------------------- | :------------------------------------------ | | First quarter | 1,149 | 77,533 | | Second quarter | 2,405 | 152,883 | | **Total** | **3,554** | **230,416** | Cash Dividends Declared and Paid (2021) | Period | Dividends Per Share | Amount Declared ($ in thousands) | Amount Paid ($ in thousands) | | :--------------- | :------------------ | :----------------------------- | :--------------------------- | | First quarter | $0.30 | 11,206 | 12,460 | | Second quarter | $0.30 | 10,611 | 10,204 | | **Total** | **$0.60** | **21,817** | **22,664** | [NOTE 5 – SHARE-BASED PLANS](index=13&type=section&id=NOTE%205%20%E2%80%93%20SHARE-BASED%20PLANS) Share-based compensation expense increased significantly year-over-year due to vesting of performance-based awards - All Performance Restricted Share Units (PRSUs) awarded in 2020 **vested in the year-to-date 2021**[45](index=45&type=chunk) - The total unearned compensation cost related to all share-based awards outstanding (excluding 2021 PSUs) at July 31, 2021, was approximately **$37.0 million**, with a weighted-average remaining expense recognition period of approximately **1.6 years**[53](index=53&type=chunk) Share-based Compensation Expense | Period | Q2 2021 ($ in millions) | Q2 2020 ($ in millions) | YTD 2021 ($ in millions) | YTD 2020 ($ in millions) | | :------- | :---------------------- | :---------------------- | :----------------------- | :----------------------- | | Expense | 11.0 | 4.5 | 22.9 | 7.4 | Non-vested Restricted Stock Units Activity (Year-to-Date 2021) | Activity | Number of Shares | Weighted Average Grant-Date Fair Value Per Share | | :------------------------------------------------ | :--------------- | :----------------------------------------------- | | Outstanding at January 30, 2021 | 1,214,212 | $22.71 | | Granted | 241,532 | $69.07 | | Vested | (427,570) | $24.27 | | Forfeited | (44,032) | $25.35 | | Outstanding at July 31, 2021 | 984,142 | $33.77 | [NOTE 6 – INCOME TAXES](index=15&type=section&id=NOTE%206%20%E2%80%93%20INCOME%20TAXES) The company anticipates a net decrease in unrecognized tax benefits over the next 12 months - The estimated net decrease in unrecognized tax benefits for the next 12 months is approximately **$4.0 million**[54](index=54&type=chunk) [NOTE 7 – CONTINGENCIES](index=15&type=section&id=NOTE%207%20%E2%80%93%20CONTINGENCIES) The company is involved in various legal actions which are not expected to have a material financial impact - Management believes current legal actions and claims will be resolved **without a material effect** on the company's financial condition, results of operations, or liquidity[55](index=55&type=chunk) [NOTE 8 – BUSINESS SEGMENT DATA](index=15&type=section&id=NOTE%208%20%E2%80%93%20BUSINESS%20SEGMENT%20DATA) Net sales are reported across seven merchandise categories, with most showing a decline in Q2 2021 - The company's seven merchandise categories are Food, Consumables, Soft Home, Hard Home, Furniture, Seasonal, and Apparel, Electronics, & Other[56](index=56&type=chunk) Net Sales by Merchandise Category (Second Quarter) | Category | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | Change (%) | | :---------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Furniture | 409,078 | 439,737 | (30,659) | (7.0)% | | Seasonal | 259,682 | 299,700 | (40,018) | (13.4)% | | Soft Home | 183,249 | 242,664 | (59,415) | (24.5)% | | Food | 178,167 | 205,797 | (27,630) | (13.4)% | | Consumables | 159,301 | 177,236 | (17,935) | (10.1)% | | Hard Home | 145,241 | 174,291 | (29,050) | (16.7)% | | Apparel, Electronics, & Other | 122,656 | 104,772 | 17,884 | 17.1% | | **Net Sales** | **1,457,374** | **1,644,197** | **(186,823)** | **(11.4)%** | [NOTE 9 – GAIN ON SALE OF DISTRIBUTION CENTERS](index=15&type=section&id=NOTE%209%20%E2%80%93%20GAIN%20ON%20SALE%20OF%20DISTRIBUTION%20CENTERS) The company generated a significant gain from the sale and leaseback of four distribution centers in 2020 - On June 12, 2020, Big Lots completed sale and leaseback transactions for four distribution centers, with an aggregate sale price of **$725.0 million**[58](index=58&type=chunk) - The transactions resulted in an aggregate gain on sales of **$463.1 million** and **$134.0 million** in financing liability proceeds[58](index=58&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management provides its perspective on financial performance, condition, and future outlook [CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS](index=16&type=section&id=CAUTIONARY%20STATEMENT%20CONCERNING%20FORWARD-LOOKING%20STATEMENTS) This section outlines the risks and uncertainties associated with the company's forward-looking statements - Forward-looking statements are identified by terms such as "anticipate," "estimate," "expect," "objective," "goal," "project," "intend," "plan," "believe," "will," "should," "may," "target," "forecast," "guidance," and "outlook"[60](index=60&type=chunk) - Actual results may differ materially due to various factors, including developments related to the **COVID-19 pandemic**, economic conditions, cost of goods, execution of strategic initiatives, competitive pressures, and **supply chain issues**[61](index=61&type=chunk) [OVERVIEW](index=17&type=section&id=OVERVIEW) This section provides a summary of key operating performance indicators for the second quarter - The Q2 2020 operating profit and diluted EPS were significantly boosted by a **$463.1 million pre-tax gain** on the sale of distribution centers, which contributed approximately **$8.54 per share** to diluted EPS[64](index=64&type=chunk) Key Operating Performance Indicators (Q2 2021 vs. Q2 2020) | Metric | Q2 2021 | Q2 2020 | Change ($ in millions) | Change (%) | | :------------------------------------ | :------ | :------ | :--------------------- | :--------- | | Net sales | $1,457.4M | $1,644.2M | $(186.8)M | (11.4)% | | Comparable sales | N/A | N/A | $(211.3)M | (13.2)% | | Gross margin dollars | $577.8M | $683.6M | $(105.8)M | (15.5)% | | Gross margin rate | 39.6% | 41.6% | (200 bps) | N/A | | Selling and administrative expenses | $488.7M | $504.0M | $(15.3)M | (3.0)% | | Selling and administrative expenses (% of net sales) | 33.5% | 30.7% | 280 bps | N/A | | Operating profit | $53.9M | $608.6M | $(554.7)M | (91.1)% | | Diluted earnings per share | $1.09 | $11.29 | $(10.20) | (90.3)% | | Cash and cash equivalents | $293.3M | $898.5M | $(605.2)M | (67.4)% | | Inventory | $943.8M | $713.5M | $230.3M | 32.3% | | Long-term debt | $0 | $43.1M | $(43.1)M | (100.0)% | | Cash dividends declared per common share | $0.30 | $0.30 | $0 | 0.0% | | Common shares acquired | 2.4M | N/A | N/A | N/A | [STORES](index=17&type=section&id=STORES) This section details the changes in the company's store count during the year-to-date period - The company expects its store count to **increase by approximately 20 stores** by the end of fiscal year 2021 compared to the end of 2020[66](index=66&type=chunk) Stores Opened and Closed (Year-to-Date) | Metric | 2021 | 2020 | | :------------------------------------ | :--- | :--- | | Stores open at the beginning of the fiscal year | 1,408 | 1,404 | | Stores opened during the period | 25 | 11 | | Stores closed during the period | (15) | (11) | | **Stores open at the end of the period** | **1,418** | **1,404** | [RESULTS OF OPERATIONS](index=18&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed comparison of operational results for the second quarter and year-to-date periods [SECOND QUARTER OF 2021 COMPARED TO SECOND QUARTER OF 2020](index=18&type=section&id=SECOND%20QUARTER%20OF%202021%20COMPARED%20TO%20SECOND%20QUARTER%20OF%202020) Q2 net sales and gross margin declined due to lapping prior-year stimulus and rising freight costs - The decrease in net sales and comparable sales was primarily driven by the larger impact of **government stimulus** on consumer behavior during Q2 2020 and the easing of COVID-19 nesting trends in Q2 2021[71](index=71&type=chunk)[72](index=72&type=chunk) - Gross margin rate **decreased 200 basis points to 39.6%** primarily due to higher inbound freight costs, exacerbated by increased ocean carriage rates and domestic transportation rates, partially offset by a lower markdown rate[75](index=75&type=chunk) - Selling and administrative expenses decreased by $15.3 million but **increased 280 basis points** as a percentage of net sales, driven by lower store payroll (absence of temporary wage increase), lower bonus expense, and absence of sale and leaseback transaction expenses, partially offset by increased distribution/transportation costs and share-based compensation[76](index=76&type=chunk)[78](index=78&type=chunk) Net Sales and Comparable Sales by Merchandise Category (Q2 2021 vs. Q2 2020) | Category | Q2 2021 Net Sales ($ in thousands) | Q2 2020 Net Sales ($ in thousands) | Net Sales Change (%) | Comps Change (%) | | :---------------------------- | :--------------------------------- | :--------------------------------- | :------------------- | :--------------- | | Furniture | 409,078 | 439,737 | (7.0)% | (9.5)% | | Seasonal | 259,682 | 299,700 | (13.4)% | (14.6)% | | Soft Home | 183,249 | 242,664 | (24.5)% | (26.1)% | | Food | 178,167 | 205,797 | (13.4)% | (14.9)% | | Consumables | 159,301 | 177,236 | (10.1)% | (11.4)% | | Hard Home | 145,241 | 174,291 | (16.7)% | (18.0)% | | Apparel, Electronics, & Other | 122,656 | 104,772 | 17.1% | 15.2% | | **Total Net Sales** | **1,457,374** | **1,644,197** | **(11.4)%** | **(13.2)%** | [YEAR-TO-DATE 2021 COMPARED TO YEAR-TO-DATE 2020](index=21&type=section&id=YEAR-TO-DATE%202021%20COMPARED%20TO%20YEAR-TO-DATE%202020) Year-to-date net sales were flat as higher freight and operating costs compressed profitability - Year-to-date net sales were flat, with a **1.7% comparable sales decrease** offset by a **$51.6 million increase** from non-comparable sales (new/relocated stores)[85](index=85&type=chunk) - Gross margin rate **decreased 70 basis points to 40.0%** primarily due to higher inbound freight costs, including ocean carriage rates, domestic transportation rates, fuel costs, and detention/demurrage charges[89](index=89&type=chunk) - Selling and administrative expenses **increased $23.5 million**, or 80 basis points as a percentage of net sales, driven by higher distribution and transportation costs, increased share-based compensation, and higher store occupancy costs, partially offset by lower store-related payroll and the absence of prior year's sale and leaseback transaction expenses and proxy contest costs[90](index=90&type=chunk)[91](index=91&type=chunk) Net Sales and Comparable Sales by Merchandise Category (YTD 2021 vs. YTD 2020) | Category | YTD 2021 Net Sales ($ in thousands) | YTD 2020 Net Sales ($ in thousands) | Net Sales Change (%) | Comps Change (%) | | :---------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | :--------------- | | Furniture | 890,509 | 855,438 | 4.1% | 1.8% | | Seasonal | 563,600 | 496,021 | 13.6% | 12.2% | | Soft Home | 407,103 | 439,416 | (7.4)% | (9.0)% | | Food | 358,464 | 420,911 | (14.8)% | (16.0)% | | Consumables | 321,689 | 372,931 | (13.7)% | (14.8)% | | Hard Home | 297,002 | 304,834 | (2.6)% | (4.0)% | | Apparel, Electronics, & Other | 244,559 | 193,795 | 26.2% | 24.4% | | **Total Net Sales** | **3,082,926** | **3,083,346** | **0.0%** | **(1.7)%** | [2021 Guidance](index=23&type=section&id=2021%20Guidance) The company provides its financial outlook for the third quarter and full fiscal year 2021 - The company anticipates significant **supply chain challenges** (COVID-19 related shutdowns) and a highly competitive domestic labor market (increased payroll expenses) to adversely impact net sales and gross margin in Q3 and Q4 2021[98](index=98&type=chunk) Q3 2021 Guidance (excluding share repurchases) | Metric | Guidance | | :------------------------------------ | :------------------------------------ | | Comparable sales | Decline in the mid-single digits | | Gross margin rate | Down approximately 175 basis points (due to freight) | | Selling and administrative expenses | Up slightly | | Diluted loss per share | $0.10 to $0.20 | Full Year 2021 Guidance (excluding share repurchases) | Metric | Guidance | | :------------------------------------ | :------------------------------------ | | Comparable sales | Decline in the low single digits | | Gross margin rate | Down approximately 100 basis points | | Selling and administrative expenses | Up | | Diluted earnings per share | $5.90 to $6.05 | [Capital Resources and Liquidity](index=23&type=section&id=Capital%20Resources%20and%20Liquidity) The company maintains strong liquidity through cash on hand and its unsecured credit facility - As of July 31, 2021, Big Lots had **$690.9 million available** under its $700 million unsecured credit facility and no outstanding borrowings[101](index=101&type=chunk) - The company prepaid the remaining **$44.3 million principal balance** of the 2019 Term Note in Q2 2021[102](index=102&type=chunk) - Big Lots intends to fund working capital, capital expenditures, share repurchases, and other commitments using **current cash and projected cash flows from operations**, without borrowing under the Credit Agreement[103](index=103&type=chunk) - Year-to-date 2021, the company purchased **3.6 million common shares for $230.4 million** under the 2020 Repurchase Authorization, with **$96.8 million remaining available** as of July 31, 2021[104](index=104&type=chunk) Cash Flow Components (YTD 2021 vs. YTD 2020) | Cash Flow Component | YTD 2021 ($ in thousands) | YTD 2020 ($ in thousands) | Change ($ in thousands) | | :------------------------------------------ | :------------------------ | :------------------------ | :---------------------- | | Net cash provided by operating activities | 142,158 | 468,384 | (326,226) | | Net cash (used in) provided by investing activities | (77,086) | 517,586 | (594,672) | | Net cash used in financing activities | (331,306) | (140,131) | (191,175) | [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=25&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) The preparation of financial statements relies on management's estimates, judgments, and assumptions - The preparation of financial statements requires management to make estimates, judgments, and assumptions that are evaluated on an ongoing basis using historical experience, current trends, and other reasonable factors[110](index=110&type=chunk) - Critical accounting policies and estimates are outlined in detail in the company's **2020 Form 10-K**[111](index=111&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risk from interest rates and diesel fuel price volatility - An increase of **1% in the variable interest rate** on expected future borrowings would not currently materially affect the company's financial condition, results of operations, or liquidity[112](index=112&type=chunk) - As of July 31, 2021, the company had outstanding derivative instruments (collars) covering **2.4 million gallons of diesel fuel**[113](index=113&type=chunk) - A **10% difference** in the forward curve for diesel fuel prices could affect unrealized gains (losses) in other income (expense) by approximately **$0.8 million**[114](index=114&type=chunk) Diesel Fuel Derivatives (July 31, 2021) | Calendar Year of Maturity | Diesel Fuel Puts (Gallons, in thousands) | Diesel Fuel Calls (Gallons, in thousands) | Fair Value Asset (Liability) ($ in thousands) | | :------------------------ | :--------------------------------------- | :---------------------------------------- | :-------------------------------------------- | | 2021 | 1,200 | 1,200 | 224 | | 2022 | 1,200 | 1,200 | 404 | | **Total** | **2,400** | **2,400** | **628** | [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective - Management concluded that disclosure controls and procedures were **effective** as of July 31, 2021[115](index=115&type=chunk) - There were **no material changes** in internal control over financial reporting during the most recent fiscal quarter[116](index=116&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings are detailed in Note 7 of the financial statements - For information regarding legal proceedings, refer to **Note 7** to the accompanying consolidated financial statements[118](index=118&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to previously disclosed risk factors during the quarter - **No material changes** to the risk factors previously disclosed in the 2020 Form 10-K occurred during the second quarter of 2021[119](index=119&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 2.4 million common shares for approximately $152.9 million in Q2 2021 - During the second quarter of 2021, the company purchased **2.4 million common shares** for approximately **$152.9 million** under the 2020 Repurchase Authorization[119](index=119&type=chunk) Common Share Repurchase Activity (Q2 2021) | Period | Total Number of Shares Purchased (in thousands) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans (in thousands) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (in thousands) | | :-------------------------- | :-------------------------------------------- | :--------------------------- | :---------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------ | | May 2, 2021 - May 29, 2021 | 46 | $69.07 | 42 | 246,750 | | May 30, 2021 - June 26, 2021 | 1,521 | $65.81 | 1,519 | 146,750 | | June 27, 2021 - July 31, 2021 | 844 | $59.26 | 844 | 96,751 | | **Total** | **2,411** | **$63.58** | **2,405** | **96,751** | [Item 3. Defaults Upon Senior Securities](index=26&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There were **no defaults** upon senior securities[120](index=120&type=chunk) [Item 4. Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported no mine safety disclosures - There were **no mine safety disclosures**[120](index=120&type=chunk) [Item 5. Other Information](index=26&type=section&id=Item%205.%20Other%20Information) The company reported no other information - There was **no other information** to report[120](index=120&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including award agreements and officer certifications - Exhibits include Form of Big Lots 2020 Long-Term Incentive Plan Performance Share Units Award Agreement and Restricted Stock Units Award Agreement[123](index=123&type=chunk) - Certifications of Principal Executive Officer and Principal Financial Officer pursuant to **Sections 302 and 906 of the Sarbanes-Oxley Act of 2002** are filed as exhibits[123](index=123&type=chunk) - **XBRL Taxonomy** Definition, Presentation, Labels, Calculation, and Schema Linkbase Documents are included[123](index=123&type=chunk)

Big Lots, Inc. (NYSE:BIG) Q2 2021 Earnings Conference Call August 27, 2021 8:00 AM ET Company Participants Bruce Thorn - President and Chief Executive Officer Jonathan Ramsden - Executive Vice President, Chief Financial and Administrative Officer Conference Call Participants Spencer Hanus - Wolfe Research Peter Keith - Piper Sandler Joe Feldman - Telsey Advisory Group Jason Haas - Bank of America Anthony Chukumba - Loop Capital Brad Thomas - KeyBanc Capital Markets Operator Ladies and gentlemen, good mornin ...

| --- | --- | --- | |-------|-------|-------| | | | | | | | | | Re | | | FORWARD LOOKING STATEMENTS Certain statements in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and such statements are intended to qualify for the protection of the safe harbor provided by the Act. The words "anticipate," "estimate," "expect," "objective," "goal," "project," "intend," "plan," "believe," "will," "should," "may," "tarqet," "forecast," "guidance," " ...

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company reported significant growth in Q1 2021 with increased sales, net income, and operating cash flow [Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Strong sales growth and improved gross margin drove a significant increase in operating profit and net income Consolidated Statements of Operations (Q1 2021 vs Q1 2020) | Metric | Thirteen Weeks Ended May 1, 2021 | Thirteen Weeks Ended May 2, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | **Net sales** | $1,625,552 | $1,439,149 | 13.0% | | **Gross margin** | $653,947 | $570,756 | 14.6% | | **Operating profit** | $122,552 | $74,435 | 64.7% | | **Net income** | $94,563 | $49,323 | 91.7% | | **Diluted EPS** | $2.62 | $1.26 | 107.9% | | **Cash dividends per share** | $0.30 | $0.30 | 0.0% | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet remained stable with a slight increase in cash and a minor decrease in shareholders' equity Consolidated Balance Sheet Highlights | Account | May 1, 2021 (in thousands) | January 30, 2021 (in thousands) | | :--- | :--- | :--- | | **Cash and cash equivalents** | $613,329 | $559,556 | | **Inventories** | $901,482 | $940,294 | | **Total current assets** | $1,628,812 | $1,585,789 | | **Total assets** | $4,037,536 | $4,037,257 | | **Total current liabilities** | $1,049,919 | $1,000,624 | | **Long-term debt** | $32,063 | $35,764 | | **Total shareholders' equity** | $1,268,502 | $1,277,731 | [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity slightly decreased due to share repurchases and dividends offsetting net income - Key changes in shareholders' equity for Q1 2021 included **$94.6 million from comprehensive income**, offset by **$11.2 million in dividends** and **$104.5 million used for purchasing treasury shares**[7](index=7&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased while financing activities shifted to a net use of cash due to share repurchases Consolidated Cash Flows (Q1 2021 vs Q1 2020) | Cash Flow Activity | Thirteen Weeks Ended May 1, 2021 (in thousands) | Thirteen Weeks Ended May 2, 2020 (in thousands) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $204,293 | $146,121 | | **Net cash used in investing activities** | ($32,170) | ($28,913) | | **Net cash (used in) provided by financing activities** | ($118,350) | $141,943 | | **Increase in cash and cash equivalents** | $53,773 | $259,151 | [Notes to Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) Notes detail store count, merchandise category realignment, credit facility status, and share repurchase activity - As of May 1, 2021, the company operated **1,413 stores in 47 states**[11](index=11&type=chunk) - In Q1 2021, the company **realigned its merchandise categories**, eliminating the 'Electronics, Toys, & Accessories' category and absorbing its departments into Soft Home, Seasonal, and Hard Home categories[18](index=18&type=chunk)[19](index=19&type=chunk) - The company had a **$700 million unsecured credit facility** with **$694.2 million available** as of May 1, 2021; subsequent to the quarter end, on June 7, 2021, the company prepaid the remaining **$44.3 million balance** on its 2019 Term Note[24](index=24&type=chunk)[25](index=25&type=chunk) - Under its $500 million share repurchase authorization, the company acquired **1.1 million shares for $77.5 million** in Q1 2021, leaving **$249.6 million available** for future repurchases[35](index=35&type=chunk)[36](index=36&type=chunk) Net Sales by Merchandise Category (Q1 2021 vs Q1 2020) | Category | Q1 2021 (in thousands) | Q1 2020 (in thousands) | | :--- | :--- | :--- | | Furniture | $481,431 | $415,700 | | Seasonal | $328,794 | $215,302 | | Soft Home | $303,981 | $248,743 | | Consumables | $204,015 | $237,241 | | Food | $175,131 | $203,819 | | Hard Home | $132,200 | $118,344 | | **Total Net Sales** | **$1,625,552** | **$1,439,149** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q1 results driven by stimulus and home-related trends, and provides Q2 guidance [Overview](index=16&type=section&id=Overview) The company highlights strong Q1 2021 performance with increased sales, improved margins, and higher EPS Key Performance Indicators (Q1 2021 vs Q1 2020) | Indicator | Q1 2021 | Q1 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales Increase | 13.0% | - | - | | Comparable Sales Increase | 11.3% | - | - | | Gross Margin Rate | 40.2% | 39.7% | +50 bps | | Operating Profit Rate | 7.5% | 5.2% | +230 bps | | Diluted EPS | $2.62 | $1.26 | +$1.36 | | Cash & Cash Equivalents | $613.3M | $311.8M | +$301.5M | [Results of Operations](index=17&type=section&id=Results%20of%20Operations) Net sales grew due to comparable sales increases, while gross margin improved despite higher freight costs - Net sales growth was driven by an **11.3% increase in comparable sales**, benefiting from government stimulus packages and continued 'nesting' trends where customers invest in their homes[68](index=68&type=chunk)[69](index=69&type=chunk) - Gross margin rate **increased by 50 basis points to 40.2%**, primarily due to lower markdowns and a favorable product mix, which was partially offset by higher inbound freight costs[71](index=71&type=chunk) - Selling and administrative expenses increased by $38.8 million in absolute terms but **decreased as a percentage of net sales by 130 basis points to 30.6%**[72](index=72&type=chunk)[73](index=73&type=chunk) Net Sales and Comparable Sales Change by Category (Q1 2021) | Category | Net Sales Change (%) | Comps Change (%) | | :--- | :--- | :--- | | Furniture | 15.8% | 13.7% | | Seasonal | 52.7% | 51.0% | | Soft Home | 22.2% | 20.6% | | Consumables | (14.0%) | (14.7%) | | Food | (14.1%) | (15.1%) | | Hard Home | 11.7% | 9.3% | | **Total** | **13.0%** | **11.3%** | [2021 Guidance](index=19&type=section&id=2021%20Guidance) The company provides Q2 2021 guidance but refrains from full-year projections due to pandemic-related uncertainty - The company is **not providing full-year 2021 guidance** due to uncertainty related to the COVID-19 pandemic[79](index=79&type=chunk) Q2 2021 Guidance | Metric | Expectation | | :--- | :--- | | Comparable Sales | Decrease in the low double digits | | Gross Margin Rate | Below last year | | Selling & Admin Expenses | Slightly below last year | | Diluted EPS | $1.00 to $1.15 | [Capital Resources and Liquidity](index=20&type=section&id=Capital%20Resources%20and%20Liquidity) The company maintains a strong liquidity position, funding operations and shareholder returns with cash on hand - At May 1, 2021, the company had **no borrowings under its $700 million credit facility** and **$694.2 million available**[82](index=82&type=chunk) - The company **repurchased 1.1 million common shares for $77.5 million** in Q1 2021, with **$249.6 million remaining** under the 2020 Repurchase Authorization[85](index=85&type=chunk) - A quarterly cash dividend of **$0.30 per share** was declared and paid in Q1 2021, consistent with the prior year[86](index=86&type=chunk) Change in Cash Flows (Q1 2021 vs Q1 2020) | Cash Flow Activity | Change (in thousands) | | :--- | :--- | | Net cash provided by operating activities | $58,172 | | Net cash used in investing activities | ($3,257) | | Net cash (used in) provided by financing activities | ($260,293) | [Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk exposure is primarily related to diesel fuel prices, with interest rate risk currently immaterial - The company had **no borrowings under its Credit Agreement** at May 1, 2021, so a 1% change in variable interest rates would not materially affect its financials[95](index=95&type=chunk) - To manage fuel cost volatility, the company had outstanding derivative collars covering **3.0 million gallons of diesel fuel** as of May 1, 2021[96](index=96&type=chunk) - A hypothetical **10% change in the forward curve for diesel fuel prices** could affect unrealized gains or losses by approximately **$1.0 million**[97](index=97&type=chunk) [Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material internal control changes - Based on an evaluation as of the end of the reporting period, the Principal Executive Officer and Principal Financial Officer concluded that the company's **disclosure controls and procedures were effective**[98](index=98&type=chunk) - **No changes occurred in internal control over financial reporting** during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[99](index=99&type=chunk) [Part II. Other Information](index=22&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) Ongoing legal matters are not expected to have a material impact on the company's financial condition - The company is involved in ordinary course legal actions and claims but **does not expect them to have a material effect** on its financial condition, results of operations, or liquidity[51](index=51&type=chunk)[100](index=100&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors were reported during the first quarter of 2021 - During the first quarter of 2021, there were **no material changes to the risk factors** previously disclosed in the 2020 Form 10-K[101](index=101&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company details its Q1 2021 share repurchase activities under its authorized buyback program - The 2020 Repurchase Authorization allows for the repurchase of up to **$500 million of common shares** and has no scheduled termination date[104](index=104&type=chunk) Share Repurchases in Q1 2021 | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | Shares Purchased Under Plan (thousands) | Value Remaining Under Plan (thousands) | | :--- | :--- | :--- | :--- | :--- | | Jan 31 - Feb 27 | 41 | $55.25 | 39 | $325,000 | | Feb 28 - Mar 27 | 543 | $67.85 | 500 | $290,948 | | Mar 28 - May 1 | 954 | $68.56 | 610 | $249,634 | | **Total** | **1,538** | **$67.96** | **1,149** | **$249,634** | [Defaults Upon Senior Securities](index=23&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - There were **no defaults upon senior securities**[105](index=105&type=chunk) [Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable as the company has no mine safety disclosures to report - There are **no mine safety disclosures**[105](index=105&type=chunk) [Other Information](index=23&type=section&id=Item%205.%20Other%20Information) The company reports no other information for the period - There is **no other information to report**[105](index=105&type=chunk) [Exhibits](index=24&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including certifications and XBRL data files - Exhibits filed include award agreements, **Sarbanes-Oxley Act certifications** by the CEO and CFO, and XBRL taxonomy documents[108](index=108&type=chunk)

Financial Data and Key Metrics Changes - Net sales for Q1 2021 were $1.626 billion, a 13% increase from $1.439 billion in Q1 2020, driven by an 11.3% increase in comparable sales [25][26] - Net income for Q1 2021 was $94.6 million compared to $49.3 million in Q1 2020, with diluted EPS at $2.62, significantly above the previous year's EPS of $1.26 [25][26] - Gross margin rate for Q1 2021 was 40.2%, up 50 basis points from the previous year, despite freight headwinds impacting margins [26] Business Line Data and Key Metrics Changes - Furniture sales saw a 14% increase in comparable sales, driven by growth in upholstery and mattresses [10] - Seasonal assortment, including patio and lawn and garden products, experienced a 51% increase in comparable sales [11] - Apparel, now included in the soft home category, had nearly a 90% increase in comparable sales, supported by expanded space and branded closeouts [12] Market Data and Key Metrics Changes - E-commerce sales grew by 30% compared to Q1 2020, with significant growth in furniture and seasonal lawn and garden categories [16] - Active rewards membership reached 21.4 million, up 12% year-over-year, with rewards customers spending 27% more than last year [13] Company Strategy and Development Direction - The company is focused on its Operation North Star strategic initiatives, which include enhancing omnichannel capabilities and improving customer service [5][6] - A new brand campaign titled "Be A BIGionaire" is being launched to attract new customers and celebrate existing ones [15] - The company plans to enhance the customer experience through Project Refresh, which aims to upgrade stores with new signage and interiors [18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges of tough year-over-year comparisons but expressed confidence in the underlying growth trend and the impact of strategic initiatives [22] - The company expects to face negative comps in Q2 2021 due to tough comparisons from the previous year but anticipates strong growth compared to 2019 [22] - Management highlighted the importance of maintaining a frugal expense architecture while investing in supply chain improvements and customer experience [17][31] Other Important Information - The company paid out $3.5 million in special cash bonuses to hourly associates, recognizing their contributions to the strong quarter [46] - The board declared a quarterly cash dividend of $0.30 per common share for Q2 2021 [29] Q&A Session Summary Question: Insights on merchandising and new products - Management confirmed that apparel sales are growing, with a mix of closeouts and regular stock, and noted successful traffic-driving opportunities with televisions [34][36] Question: Details on the new labor model - The new labor model includes dedicated furniture teams in select stores, leading to strong sales returns, with plans for broader implementation in 2022 [37][38] Question: Sales outlook and two-year stacked comps - Management expects moderation in two-year stacked comps due to the absence of stimulus benefits in the latter half of the year, but anticipates some support from new child tax credit payments [42] Question: Inventory position and supply chain challenges - Management acknowledged challenges in inventory due to supply chain issues but expressed confidence in improving inventory levels by the end of Q2 [43] Question: Special cash bonuses for associates - The company paid $3.5 million in bonuses, equating to $100 for hourly associates and $150 for store managers, with future bonuses being considered based on performance [46] Question: Customer demographics and brand perception - Management noted a shift in customer demographics towards a younger, middle-class demographic, driven by the introduction of higher-quality brands like Broyhill [48][49] Question: Gross margin opportunities and challenges - Management discussed potential long-term gross margin drivers, including promotional pricing optimization and improved supplier relationships, while acknowledging current freight pressures [56][58]

Part I [Business Overview](index=4&type=section&id=Item%201.%20Business) Big Lots is a U.S-based community discount retailer focused on delivering value through a unique merchandise mix and strategic initiatives [The Company](index=4&type=section&id=The%20Company) - Big Lots, Inc, an Ohio corporation, operates a community discount retail business in the United States through its wholly-owned subsidiaries[4](index=4&type=chunk) - As of January 30, 2021, the company operated **1,408 stores** and an e-commerce platform[4](index=4&type=chunk) - The company's mission is to help people "live BIG and save LOTS," with a vision to be a "BIG difference for a better life" by offering unparalleled value and creating a "best place to work" culture[4](index=4&type=chunk) - The company is headquartered at 4900 E Dublin-Granville Road, Columbus, Ohio[5](index=5&type=chunk) - The company is managed as a single business segment of discount retailing[6](index=6&type=chunk)[236](index=236&type=chunk) - In 2020, the company evaluated and reported overall sales and merchandise performance based on the following major merchandise categories: Furniture, Seasonal, Soft Home, Food, Consumables, Hard Home, and Electronics, Toys & Accessories[6](index=6&type=chunk) [Merchandising](index=4&type=section&id=Merchandising) - The core of the company's merchandising strategy is to be the authority on price and value for its customer (Jennifer) across all merchandise categories, delivering surprise and delight through its product assortment[7](index=7&type=chunk) - The company utilizes both traditional and closeout sourcing channels to provide products of exceptional value and surprise[7](index=7&type=chunk) - The company combines closeout opportunities with planned purchases to offer both the innovation of closeout items and the stability of staple products[9](index=9&type=chunk) - Over the past two years, the company has focused on increasing the procurement of high-quality closeout merchandise directly from manufacturers and other suppliers, often at prices below traditional discount retailers[9](index=9&type=chunk) - In 2020, **closeout-related net sales increased by approximately 37%** compared to 2019[9](index=9&type=chunk) - In 2020, approximately **21% of the company's merchandise (by cost) was sourced directly from overseas suppliers**, with about **13% originating from China**[10](index=10&type=chunk) [Advertising and Promotion](index=5&type=section&id=Advertising%20and%20Promotion) - The company promotes its brand through various marketing tools, including television, internet, social media, email, in-store point-of-sale, and print media[11](index=11&type=chunk) - The company's brand image emphasizes friendly service and community orientation, giving back to the community by supporting local and national charities[12](index=12&type=chunk) - In 2020, the company distributed 23 weeks of advertising circulars, compared to 29 weeks in 2019, with regional versions tailored to market differences[13](index=13&type=chunk) - The customer database is a crucial marketing tool for cost-effective communication, including emails, flash sales, and product promotions[14](index=14&type=chunk) - The **BIG Rewards program**, which rewards frequent and high-value customers and offers birthday rewards, had nearly **21 million active members** as of January 30, 2021[14](index=14&type=chunk) - In 2020, the company significantly increased its investment in social and digital media marketing, including Facebook, Instagram, Twitter, Pinterest, and YouTube[15](index=15&type=chunk) Advertising Expense as a Percentage of Net Sales (Fiscal 2018-2020) | Fiscal Year | Advertising Expense as a % of Net Sales | |:---|:---| | 2020 | 1.7% | | 2019 | 1.8% | | 2018 | 1.8% | [Competition](index=6&type=section&id=Competition) - The company operates in a highly competitive retail industry, facing intense sales competition from other general merchandise, discount, food, furniture, arts and crafts, and dollar store retailers operating through physical stores and/or online platforms[16](index=16&type=chunk) - The company also competes with numerous companies for retail store locations, attracting and retaining quality employees, and sourcing a wide range of merchandise from suppliers[16](index=16&type=chunk) - The company's e-commerce platform faces additional competition from a broader range of retailers, with competition focused on customers, fulfillment capabilities, and technological innovation[16](index=16&type=chunk) [Real Estate](index=6&type=section&id=Real%20Estate) Store Count Changes (Past Five Fiscal Years) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | |:---|:---|:---|:---|:---|:---| | Stores at Beginning of Year | 1,404 | 1,401 | 1,416 | 1,432 | 1,449 | | New Stores Opened During Year | 24 | 54 | 32 | 24 | 9 | | Stores Closed During Year | (20) | (51) | (47) | (40) | (26) | | Stores at End of Year | 1,408 | 1,404 | 1,401 | 1,416 | 1,432 | - As of January 30, 2021, the company operated **1,408 stores in 47 states**, with **33% of stores located in California, Texas, Florida, and Ohio**, which contributed 33% of net sales in 2020[18](index=18&type=chunk) [Warehouse and Distribution](index=7&type=section&id=Warehouse%20and%20Distribution) - The majority of the company's merchandise is processed and distributed through five regional distribution centers located in Alabama, California, Ohio, Oklahoma, and Pennsylvania[19](index=19&type=chunk) - The distribution centers are strategically located to manage transportation costs and minimize distances to stores, facilitating timely and efficient distribution to maximize sales and inventory turnover[20](index=20&type=chunk) - The company operates two warehouses within its Ohio distribution center: one for distributing equipment and supplies to stores and regional distribution centers, and another to supplement the e-commerce fulfillment center[21](index=21&type=chunk) - In 2020, the company began fulfilling direct-to-consumer e-commerce orders from **47 stores** to supplement its e-commerce fulfillment capabilities and plans to open two small, third-party-operated distribution centers in 2021 to enhance supply chain efficiency and capacity for future growth[21](index=21&type=chunk)[22](index=22&type=chunk) [Seasonality](index=8&type=section&id=Seasonality) - The company's sales and profitability exhibit seasonal fluctuations, with the fourth fiscal quarter (including the Christmas selling season) typically contributing a larger portion of net sales and operating profit[25](index=25&type=chunk) - The third fiscal quarter usually involves receiving a higher proportion of merchandise, maintaining higher inventory levels, and incurring a greater share of outbound transportation and payroll expenses in preparation for the fourth quarter sales increase[25](index=25&type=chunk) - The second fiscal quarter of 2020 had an unusually high percentage of annual net sales due to increased demand during the COVID-19 pandemic[25](index=25&type=chunk) Seasonal Distribution of Net Sales and Operating Profit (Loss) (Fiscal 2018-2020) | Fiscal Year | Quarter | Net Sales as a % of Annual | Operating Profit as a % of Annual | |:---|:---|:---|:---| | 2020 | First | 23.2 % | 8.7 % | | | Second | 26.5 % | 71.0 % (a) | | | Third | 22.2 % | 5.0 % | | | Fourth | 28.1 % | 15.3 % | | 2019 | First | 24.3 % | 7.7 % | | | Second | 23.5 % | 3.9 % | | | Third | 21.9 % | 50.9 % (b) | | | Fourth | 30.3 % | 37.5 % | | 2018 | First | 24.2 % | 20.8 % | | | Second | 23.3 % | 15.7 % | | | Third | 22.0 % | (4.4) % | | | Fourth | 30.5 % | 67.9 % | (a) The second quarter of 2020 includes a gain of $459.1 million from the sale of distribution centers and related expenses, significantly increasing the percentage of annual operating profit for the quarter (b) The third quarter of 2019 includes a gain of $178.5 million from the sale of a distribution center, significantly increasing the percentage of annual operating profit for the quarter [Human Capital](index=8&type=section&id=Human%20Capital) - As of January 30, 2021, the company had approximately **37,000 active employees**, including 10,800 full-time and 26,200 part-time employees, with about **71% of the workforce being part-time** in 2020[27](index=27&type=chunk) - The company assesses its human capital management through an annual employee engagement survey, which achieved a **93% response rate** and an **82% engagement score** in 2020[29](index=29&type=chunk) - In 2020, the company established a Diversity, Equity, and Inclusion (DEI) Council and a DEI Executive Advisory Council to drive its DEI strategy[30](index=30&type=chunk) - The company offers comprehensive compensation and benefits, including incentive pay, performance bonuses, paid time off, 401(k) matching, and health insurance, with employee discounts totaling approximately **$37 million** in 2020[31](index=31&type=chunk) - The company is committed to talent development through annual goal setting, performance reviews, individual development plans, and the Big Lots University training tool[32](index=32&type=chunk) - In 2020, the company invested over **$50 million** in its COVID-19 response, including enhanced sanitation protocols, personal protective equipment, social distancing measures, daily health screenings, and temporary pay increases and bonuses for non-exempt employees[33](index=33&type=chunk) [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to strategy execution, operations, human capital, competition, cybersecurity, and regulations - The company faces risks from the failure to successfully refine and execute its operating strategies, which could significantly impact operating results[41](index=41&type=chunk)[42](index=42&type=chunk) - Failure to properly manage inventory levels and provide merchandise that meets changing customer demands could materially affect business and financial performance[43](index=43&type=chunk)[44](index=44&type=chunk) - Disruptions in the distribution network, insufficient distribution center capacity, and failure to receive merchandise in a timely manner could adversely affect operating results[45](index=45&type=chunk)[46](index=46&type=chunk) - Failure to retain existing stores and/or secure suitable new store locations on favorable lease terms could negatively impact financial performance[47](index=47&type=chunk)[48](index=48&type=chunk) - Failure to maintain or upgrade computer systems, or damage or malfunction of information technology or computer systems, could lead to operational disruptions or reduced efficiency[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) - Failure to attract, train, and retain high-quality employees while controlling labor costs could negatively impact financial performance[52](index=52&type=chunk)[53](index=53&type=chunk) - The loss of key personnel could have a material impact on the company's future business and operating results[54](index=54&type=chunk) - Failure to effectively respond to the highly competitive discount retail industry and omnichannel retail market could have a material adverse effect on business and operating results[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) - A deterioration in general economic conditions, disposable income levels, and other conditions such as unseasonal weather or pandemics could lead to reduced consumer demand for merchandise, severely impacting revenue and gross margin[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk) - Failure to protect customer, employee, supplier, and company data could result in system damage, reputational harm, and potential fines or litigation[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) - The company relies heavily on foreign manufacturers, including those in China, for a significant amount of its merchandise, and its business could be materially adversely affected by international trade risks, including U.S tariffs and/or sanctions on certain consumer goods imported from China and the impact of the COVID-19 pandemic[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) - Changes in federal or state legislation and regulations, including the impact of product safety and hazardous substance regulations, could increase operating costs and adversely affect operating results[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - The company is subject to periodic litigation and regulatory proceedings, including Fair Labor Standards Act, state wage and hour, and shareholder class action lawsuits, which could adversely affect business and financial performance[74](index=74&type=chunk)[75](index=75&type=chunk) - Current insurance programs may expose the company to unexpected costs and negatively impact financial performance[76](index=76&type=chunk) - Failure to comply with the terms of the 2018 Credit Agreement could have a material adverse effect on capital resources, financial condition, operating results, and liquidity[77](index=77&type=chunk)[78](index=78&type=chunk) - A significant decline in operating profit could impair the company's ability to realize the value of its long-lived assets and may result in asset impairment[79](index=79&type=chunk) [Unresolved Staff Comments](index=17&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments in this report - There are no unresolved staff comments in this report[80](index=80&type=chunk) [Properties](index=18&type=section&id=Item%202.%20Properties) The company operates 1,408 U.S. stores, primarily leased, and owns five regional distribution centers and its corporate headquarters - All of the company's stores are located in the United States, primarily in shopping centers, with an average store size of approximately **32,700 square feet**, of which about **22,700 square feet is selling space**[83](index=83&type=chunk) - In 2020, the average cost to open a new store in a leased facility was approximately **$1.7 million**, including construction, equipment, and inventory costs[84](index=84&type=chunk) - All stores are leased except for **50 owned stores** located in California (36), Colorado (3), Florida (3), Louisiana (1), Michigan (1), New Mexico (2), Ohio (1), and Texas (3)[84](index=84&type=chunk) - A typical store lease term is approximately ten years, with multiple five-year renewal options, and 26 store leases contain sales termination clauses[85](index=85&type=chunk) Store Lease Expirations (Next Five Years and Thereafter) | Fiscal Year | Number of Leases Expiring | Number of Leases Without Renewal Options | |:---|:---|:---| | 2021 | 245 | 64 | | 2022 | 204 | 45 | | 2023 | 235 | 46 | | 2024 | 190 | 23 | | 2025 | 204 | 29 | | Thereafter | 267 | 7 | Note: This table excludes 18 month-to-month leases and 50 owned properties - As of January 30, 2021, the company leased and operated approximately **9.0 million square feet** of distribution center and warehouse space across five strategic facilities[88](index=88&type=chunk) - In the first quarter of 2020, the company completed the operational transition from its Rancho Cucamonga, CA distribution center to its Apple Valley, CA facility[88](index=88&type=chunk) - In 2020, the company began fulfilling direct-to-consumer e-commerce orders from **47 stores** to supplement its e-commerce fulfillment center in Columbus, Ohio[89](index=89&type=chunk) Distribution Center and Warehouse Facilities (as of January 30, 2021) | Location | Year Opened | Total Sq Ft (in thousands) | Number of Stores Served | |:---|:---|:---|:---| | Columbus, OH | 1989 | 3,559 | 323 | | Montgomery, AL | 1996 | 1,411 | 304 | | Tremont, PA | 2000 | 1,295 | 310 | | Durant, OK | 2004 | 1,297 | 253 | | Apple Valley, CA | 2019 | 1,416 | 218 | | Total | | 8,978 | 1,408 | - The company completed the acquisition of its corporate headquarters facility in Columbus, Ohio in October 2019[91](index=91&type=chunk) [Legal Proceedings](index=20&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in certain legal proceedings, with details provided in Note 9 to the Consolidated Financial Statements - The company is involved in certain legal proceedings, with specific information available in Note 9 to the Consolidated Financial Statements[92](index=92&type=chunk) [Mine Safety Disclosures](index=20&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no mine safety disclosures in this report - There are no mine safety disclosures in this report[93](index=93&type=chunk) [Supplemental Item. Executive Officers of the Registrant](index=20&type=section&id=Supplemental%20Item.%20Executive%20Officers%20of%20the%20Registrant) This section lists the company's principal executive officers, their roles, and tenure as of March 30, 2021 Executive Officer Information as of March 30, 2021 | Name | Age | Position | Tenure Since | |:---|:---|:---|:---| | Bruce K. Thorn | 53 | President and Chief Executive Officer | 2018 | | Gene Eddie Burt | 55 | Executive Vice President, Chief Supply Chain Officer | 2020 | | Andrej Mueller | 44 | Executive Vice President, Strategy and Chief Customer Officer | 2019 | | Nicholas E. Padovano | 57 | Executive Vice President, Chief Stores Officer | 2014 | | Jack A. Pestello | 51 | Executive Vice President, Chief Merchandising Officer | 2020 | | Jonathan E. Ramsden | 56 | Executive Vice President, Chief Financial and Administrative Officer | 2019 | | Ronald A. Robins, Jr. | 57 | Executive Vice President, Chief Legal and Governance Officer, General Counsel and Corporate Secretary | 2015 | | Michael A. Schlonsky | 54 | Executive Vice President, Chief Human Resources Officer | 2000 | - **Bruce K. Thorn** has served as President and Chief Executive Officer since September 2018, having previously been President and Chief Operating Officer of Tailored Brands, Inc[94](index=94&type=chunk) - **Gene Eddie Burt** was promoted to Executive Vice President, Chief Supply Chain Officer in January 2021, responsible for supply chain and logistics[95](index=95&type=chunk) - **Andrej Mueller** was promoted to Executive Vice President, Strategy and Chief Customer Officer in May 2020, responsible for business strategy and marketing[96](index=96&type=chunk) - **Nicholas E. Padovano** was promoted to Executive Vice President, Chief Stores Officer in March 2021, responsible for store operations and customer engagement[97](index=97&type=chunk) - **Jack A. Pestello** joined the company in July 2020 as Executive Vice President, Chief Merchandising Officer, responsible for merchandising, global sourcing, merchandise presentation, and planning[98](index=98&type=chunk) - **Jonathan E. Ramsden** joined the company in August 2019 as Executive Vice President, Chief Financial and Administrative Officer, responsible for financial reporting, planning, treasury, risk management, tax, internal audit, investor relations, real estate, and asset protection[99](index=99&type=chunk) - **Ronald A. Robins, Jr.** was promoted to Executive Vice President, Chief Legal and Governance Officer in September 2019, responsible for legal affairs and corporate governance[100](index=100&type=chunk) - **Michael A. Schlonsky** was promoted to Executive Vice President, Chief Human Resources Officer in August 2015, responsible for talent management and human resources oversight[101](index=101&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under "BIG," with details on stock repurchases and shareholder returns provided - The company's common stock is listed on the New York Stock Exchange (NYSE) under the trading symbol "BIG"[103](index=103&type=chunk) Common Stock Repurchases in Q4 2020 | Period | Total Number of Shares Purchased (in thousands) | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in thousands) | Approx Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | |:---|:---|:---|:---|:---| | Nov 1, 2020 - Nov 28, 2020 | 3 | 47.47 | — | 400,000 | | Nov 29, 2020 - Dec 26, 2020 | 1,010 | 45.30 | 1,009 | 354,305 | | Dec 27, 2020 - Jan 30, 2021 | 561 | 48.31 | 561 | 327,167 | | Total | 1,574 | 46.38 | 1,570 | 327,167 | - In the fourth quarter of 2020, the company repurchased approximately **1.6 million shares** of common stock for a total of about **$72.8 million** under the 2020 Repurchase Authorization (authorizing up to $500 million in repurchases)[103](index=103&type=chunk) - As of March 26, 2021, there were approximately **849 registered holders** of the company's common stock[104](index=104&type=chunk) Cumulative Total Shareholder Return (January 2016 to January 2021) | Company/Index | Jan 2016 | Jan 2017 | Jan 2018 | Jan 2019 | Jan 2020 | Jan 2021 | |:---|:---|:---|:---|:---|:---|:---| | Big Lots, Inc. | $100.00 | $127.64 | $154.50 | $86.44 | $77.91 | $180.46 | | S&P 500 Index | $100.00 | $120.87 | $148.47 | $148.38 | $180.37 | $211.48 | | S&P 500 Retailing Index | $100.00 | $118.55 | $167.52 | $181.29 | $218.65 | $309.14 | [Selected Financial Data](index=24&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents key financial data for the past five fiscal years, highlighting significant growth in fiscal 2020 Selected Financial Data (Fiscal 2016-2020, in thousands of dollars, except per share amounts) | Metric | 2020 (a) | 2019 (a) | 2018 (a) | 2017 (b) | 2016 (a) | |:---|:---|:---|:---|:---|:---| | Net sales | $6,199,186 | $5,323,180 | $5,238,105 | $5,264,362 | $5,193,995 | | Cost of sales | 3,701,800 | 3,208,498 | 3,116,210 | 3,121,920 | 3,094,576 | | Gross profit | 2,497,386 | 2,114,682 | 2,121,895 | 2,142,442 | 2,099,419 | | Selling and administrative expenses | 1,965,555 | 1,823,409 | 1,778,416 | 1,723,996 | 1,730,956 | | Depreciation expense | 138,336 | 134,981 | 124,970 | 117,093 | 120,460 | | Gain on sale of distribution centers | (463,053) | (178,534) | — | — | — | | Operating profit | 856,548 | 334,826 | 218,509 | 301,353 | 248,003 | | Interest expense | (11,031) | (16,827) | (10,338) | (6,711) | (5,091) | | Other income (expense) | (911) | (451) | (558) | 712 | 1,387 | | Income before income taxes | 844,606 | 317,548 | 207,613 | 295,354 | 244,299 | | Income tax expense | 215,415 | 75,084 | 50,719 | 105,522 | 91,471 | | Net income | $629,191 | $242,464 | $156,894 | $189,832 | $152,828 | | Basic earnings per share | $16.46 | $6.18 | $3.84 | $4.43 | $3.37 | | Diluted earnings per share | $16.11 | $6.16 | $3.83 | $4.38 | $3.32 | | Weighted-average common shares (basic) | 38,233 | 39,244 | 40,809 | 42,818 | 45,316 | | Weighted-average common shares (diluted) | 39,067 | 39,351 | 40,962 | 43,300 | 45,974 | | Cash dividends per share | $1.20 | $1.20 | $1.20 | $1.00 | $0.84 | | Total assets | $4,037,257 | $3,189,281 | $2,023,347 | $1,651,726 | $1,607,707 | | Working capital | 585,165 | 193,129 | 489,443 | 432,365 | 315,784 | | Cash and cash equivalents | 559,556 | 52,721 | 46,034 | 51,176 | 51,164 | | Long-term debt | 35,764 | 279,464 | 374,100 | 199,800 | 106,400 | | Shareholders' equity | $1,277,731 | $845,464 | $693,041 | $669,587 | $650,630 | | Cash flows from operating activities | $399,349 | $338,970 | $234,060 | $250,368 | $311,925 | | Cash flows from investing activities | $452,987 | $(74,480) | $(376,473) | $(156,508) | $(84,701) | | Total store square footage (in thousands) | 46,008 | 45,453 | 44,500 | 44,638 | 44,570 | | Total selling square footage (in thousands) | 32,016 | 31,705 | 31,217 | 31,399 | 31,519 | | Number of stores at fiscal year-end | 1,408 | 1,404 | 1,401 | 1,416 | 1,432 | (a) The period shown is 52 weeks (b) The period shown is 53 weeks (c) In 2019, the company adopted Accounting Standards Update 2016-02, Leases (Topic 842). Consequently, 2020 and 2019 include right-of-use assets and operating lease liabilities, which are not comparable to the other fiscal years shown [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strong fiscal 2020 performance, strategic initiatives, and financial condition [Overview](index=25&type=section&id=Overview) - The company's fiscal year ends on the Saturday closest to January 31, resulting in some fiscal years being 52 weeks and others 53 weeks; fiscal 2020, 2019, and 2018 were all 52-week years, and fiscal 2021 will also be a 52-week year[113](index=113&type=chunk)[235](index=235&type=chunk) [Operating Results Summary](index=25&type=section&id=Operating%20Results%20Summary) Consolidated Statements of Operations Components as a Percentage of Net Sales (Fiscal 2018-2020) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Net sales | 100.0 % | 100.0 % | 100.0 % | | Cost of sales | 59.7 % | 60.3 % | 59.5 % | | Gross profit | 40.3 % | 39.7 % | 40.5 % | | Selling and administrative expenses | 31.7 % | 34.3 % | 34.0 % | | Depreciation expense | 2.2 % | 2.5 % | 2.4 % | | Gain on sale of distribution centers | (7.5) % | (3.4) % | 0.0 % | | Operating profit | 13.8 % | 6.3 % | 4.2 % | | Interest expense | (0.2) % | (0.3) % | (0.2) % | | Other income (expense) | (0.0) % | (0.0) % | (0.0) % | | Income before income taxes | 13.6 % | 6.0 % | 4.0 % | | Income tax expense | 3.5 % | 1.4 % | 1.0 % | | Net income | 10.1 % | 4.6 % | 3.0 % | - **Net sales in 2020 increased by $876 million (16.5%)**, with comparable sales increasing by $816.1 million (16.1%)[115](index=115&type=chunk) - **Gross profit increased by $382.7 million**, and the gross margin rate improved by 60 basis points to 40.3%[115](index=115&type=chunk) - Selling and administrative expenses increased by $142.2 million, but as a percentage of net sales, they decreased by 260 basis points to 31.7%[115](index=115&type=chunk) - The gain on the sale of distribution centers increased by $284.6 million to $463.1 million[115](index=115&type=chunk) - **Operating profit increased by $521.7 million** to $856.5 million[115](index=115&type=chunk) - **Diluted earnings per share grew by 161.5%** to $16.11[115](index=115&type=chunk) - **Return on invested capital increased from 21.2% to 48.4%**[115](index=115&type=chunk) - Cash and cash equivalents increased by $506.9 million to $559.6 million[115](index=115&type=chunk) - Inventory increased by $19.0 million (2.1%) to $940.3 million[115](index=115&type=chunk) - The company repurchased **3.8 million shares** of common stock for $172.8 million[115](index=115&type=chunk) - The company declared and paid quarterly cash dividends of $0.30 per share, totaling $47.0 million[115](index=115&type=chunk) - In 2020, the gain on the sale of distribution centers and related expenses increased operating profit by **$459.1 million** and diluted earnings per share by approximately **$8.75**[117](index=117&type=chunk) - In 2019, cost of sales included a $6.0 million inventory write-down for the greeting card department, and selling and administrative expenses included $38.3 million in "Operation North Star" restructuring costs and a $7.3 million estimated cost for employee wage and hour claims; the $178.5 million gain on the sale of a distribution center increased 2019 operating profit by $178.5 million and diluted EPS by approximately $3.47[118](index=118&type=chunk) [Operating Strategy](index=26&type=section&id=Operating%20Strategy) - In 2019, the company completed a comprehensive review of its operating strategy, developing a multi-year strategic transformation plan called "Operation North Star"[119](index=119&type=chunk) - "Operation North Star" has three main objectives: **drive long-term profitable growth, fund the journey, and create long-term shareholder value**[119](index=119&type=chunk) - The goal of driving long-term profitable growth includes strengthening the home category, growing private brands (especially Broyhill), increasing store traffic, responsibly investing in store presentation, growing the store count, and growing e-commerce sales[120](index=120&type=chunk) - The goal of funding the journey includes expanding gross margin, improving store efficiency and productivity, enhancing organizational efficiency, fostering a culture of frugality, and continuously analyzing purchasing habits and supplier agreements[122](index=122&type=chunk) - Creating long-term shareholder value is the ultimate outcome of the first two objectives, and through effective execution, the company believes it can achieve profitable growth[123](index=123&type=chunk) - In 2020, "Operation North Star" made significant progress, including **Broyhill brand sales exceeding $400 million**, a net increase of 4 stores, implementation of "The Lot" and "Queue Line" presentation concepts in about 50% of stores, completion of the "Pantry Optimization" project, development of curbside pickup, partnerships with Instacart and PICKUP for same-day delivery, an employee engagement score of 82%, and a 600 basis point increase in customer satisfaction to approximately 81%[125](index=125&type=chunk) - Plans for 2021 include expanding "The Lot" and "Queue Line" to approximately 550 stores, opening two small distribution centers, implementing space planning tools, expanding Broyhill home goods and kitchen textiles, continuing to increase the store count, updating the e-commerce platform user interface, and investing in e-commerce analytics tools[126](index=126&type=chunk) [Merchandising](index=27&type=section&id=Merchandising) - The company's merchandising strategy focuses on being the authority on price and value for its customer (Jennifer) across all merchandise categories, offering a surprising and delightful product mix, and strengthening the home category under "Operation North Star"[127](index=127&type=chunk) - **Broyhill brand products generated over $400 million in sales in 2020**, with plans to expand into home goods and kitchen textiles in 2021[128](index=128&type=chunk) - The furniture category offers a competitive advantage through sourcing relationships, in-store availability, and everyday value products, along with third-party financing options and same-day delivery services[128](index=128&type=chunk) - The seasonal category offers fashionable and high-value products through private brands, with most merchandise sourced through imports to maintain competitiveness[129](index=129&type=chunk) - The soft home category complements the furniture and seasonal categories by increasing selling space and offering fashionable, high-value products, providing a "solutions-based" shopping experience[130](index=130&type=chunk) - The food and consumables categories focus on providing reliable value, consistency, and convenience for everyday essentials, achieving a competitive advantage through closeout items and "never-out" brand-name products[131](index=131&type=chunk) - In 2020, the company reallocated space in the food and consumables categories through the "Pantry Optimization" project to expand the "never-out" consumables category[131](index=131&type=chunk) - The hard home and electronics, toys & accessories categories serve as convenient complements to other merchandise categories; the company has intentionally narrowed the scope of these categories and reallocated space to the home categories[132](index=132&type=chunk) - In 2020, the company expanded its apparel category, including graphic tees displayed in "The Lot" area, and plans to continue seeking apparel closeout opportunities[132](index=132&type=chunk) [Marketing](index=29&type=section&id=Marketing) - The primary goal of marketing activities is to increase net sales and comparable sales by positioning the brand as an "authority on price and value" and a "source of surprise and delight"[134](index=134&type=chunk) - Company research indicates that its customer (Jennifer) is deal-focused, enjoys "treasure hunting," and values the company's ability to provide high-value merchandise and assist with home furnishing[134](index=134&type=chunk) - The company has increased its use of social and digital media (such as Facebook, Instagram, Pinterest, Twitter, and YouTube) to directly communicate its value proposition to customers and gather feedback[135](index=135&type=chunk) - The **BIG Rewards program** incentivizes loyal customers with coupons after every three purchases, birthday rewards, and special rewards for high-value furniture purchases[135](index=135&type=chunk) - As of January 30, 2021, the BIG Rewards program had nearly **21 million active members**, and the company is committed to continuing to grow its member base in 2021[135](index=135&type=chunk) - Marketing communications also include television advertising, print advertising circulars, and in-store signage, focusing on promoting the brand and the value proposition of unique merchandise[136](index=136&type=chunk) [Shopping Experience](index=29&type=section&id=Shopping%20Experience) - A core objective of "Operation North Star" is to responsibly invest in store presentation to create an effortless shopping experience for customers[137](index=137&type=chunk) - In 2020, the company re-evaluated its investment in the "Store of the Future" concept, shifting focus to smaller-scale initiatives like "The Lot" and "Queue Line," which are expected to yield higher returns[138](index=138&type=chunk) - In 2020, the company implemented "The Lot" presentation concept in about 50% of its stores, increasing selling space and providing surprise and delight through vignette displays of merchandise from different categories[139](index=139&type=chunk) - In 2020, the company implemented the "Queue Line" simplified checkout experience in about 50% of its stores, enhancing the customer experience and increasing sales by reconfiguring the checkout design[140](index=140&type=chunk) - The "Pantry Optimization" project reallocated space in the food and consumables categories to offer a more consistent selection of essential items[141](index=141&type=chunk) - The company is committed to improving the e-commerce shopping experience, including increasing "extended aisle" merchandise, launching a nationwide BOPIS (Buy Online, Pick-up In Store) program, curbside pickup, online gift card sales, shipping from 47 stores to reduce delivery times, and partnering with Instacart and PICKUP for same-day delivery[142](index=142&type=chunk) - In 2021, the company plans to update its e-commerce website user interface and implement new analytics tools to better understand customers' online shopping habits[142](index=142&type=chunk) - The company also offers a private label credit card, an Easy Leasing lease-to-own solution, and coverage/warranty programs to enhance the customer experience, with plans to expand the warranty program to more merchandise categories and the e-commerce platform in 2021[142](index=142&type=chunk) [Real Estate](index=30&type=section&id=Real%20Estate) - As the proportion of furniture sales has increased, the company has chosen to gradually expand the size of new stores to accommodate furniture displays[143](index=143&type=chunk) - In 2020, the company re-evaluated its investment in the "Store of the Future" concept, shifting focus to smaller-scale initiatives expected to yield higher returns[144](index=144&type=chunk) - The company's current real estate development plan includes increasing the store count, with an expected addition of **15 to 25 stores in 2021**, and renovating some older stores[145](index=145&type=chunk) - In 2021, the company expects to open **50 to 60 stores** and close approximately 35 existing stores, with about 20 of the closures being relocations within the same market[146](index=146&type=chunk) - The company has **245 store leases expiring in 2021** and expects to renew or renegotiate the majority of them[146](index=146&type=chunk) [2020 COMPARED TO 2019](index=31&type=section&id=2020%20COMPARED%20TO%202019) - In 2020, **net sales increased by $876 million (16.5%) to $6.1992 billion**, with comparable sales growing by 16.1% and non-comparable store sales adding $59.9 million[148](index=148&type=chunk) - During the COVID-19 pandemic, the company benefited as an "essential retailer," with increased demand for home products, and government stimulus funds and unemployment benefits driving sales growth in the furniture, seasonal, soft home, and hard home categories[149](index=149&type=chunk) - "The Lot" and "Queue Line" presentation concepts, as well as the "Pantry Optimization" project, also contributed to the growth in net sales and comparable sales in 2020[150](index=150&type=chunk) Net Sales and Comparable Sales Change by Merchandise Category (2020 vs 2019) | Merchandise Category | 2020 Net Sales (in thousands) | 2020 % of Total Net Sales | 2019 Net Sales (in thousands) | 2019 % of Total Net Sales | Sales Change (in thousands) | % Sales Change | % Comparable Sales Change | |:---|:---|:---|:---|:---|:---|:---|:---| | Furniture | $1,736,932 | 28.0 % | $1,427,129 | 26.8 % | $309,803 | 21.7 % | 20.5 % | | Soft Home | 1,048,970 | 16.9 % | 853,434 | 16.0 % | 195,536 | 22.9 % | 22.8 % | | Consumables | 932,259 | 15.0 % | 803,593 | 15.1 % | 128,666 | 16.0 % | 16.6 % | | Seasonal | 815,378 | 13.2 % | 773,720 | 14.6 % | 41,658 | 5.4 % | 5.4 % | | Food | 798,950 | 12.9 % | 757,351 | 14.2 % | 41,599 | 5.5 % | 5.6 % | | Electronics, Toys & Accessories | 438,450 | 7.1 % | 344,947 | 6.5 % | 93,503 | 27.1 % | 26.9 % | | Hard Home | 428,247 | 6.9 % | 363,006 | 6.8 % | 65,241 | 18.0 % | 18.4 % | | Total Net Sales | $6,199,186 | 100.0 % | $5,323,180 | 100.0 % | $876,006 | 16.5 % | 16.1 % | - **Gross profit increased by $382.7 million (18.1%) to $2.4974 billion**, and the gross margin rate improved by 60 basis points to 40.3%, primarily due to lower markdown rates, comparable sales growth in high-margin merchandise categories, and the absence of the 2019 greeting card department inventory write-down[155](index=155&type=chunk) - Selling and administrative expenses increased by $142.2 million (7.8%) to $1.9656 billion, mainly due to higher distribution and transportation costs, store payroll, bonus expenses, equity-based compensation, store rent, advertising expenses, and transaction fees, partially offset by the absence of 2019 restructuring costs and lower health benefit costs[156](index=156&type=chunk) - Selling and administrative expenses as a percentage of net sales decreased by 260 basis points to 31.7%[158](index=158&type=chunk) - Depreciation expense increased by $3.3 million to $138.3 million, primarily due to the full-year impact of investments in the Apple Valley, CA distribution center, new store construction, and the headquarters facility acquisition, partially offset by the sale of four distribution centers in 2020[159](index=159&type=chunk) - Depreciation expense as a percentage of net sales decreased by 30 basis points[160](index=160&type=chunk) - The gain on the sale of distribution centers was **$463.1 million in 2020**, compared to $178.5 million in 2019, primarily from the sale and leaseback of four distribution centers in 2020[161](index=161&type=chunk) - **Operating profit increased from $334.8 million in 2019 to $856.5 million in 2020**, driven by the gain on the sale of distribution centers, net sales growth, and gross margin improvement[162](index=162&type=chunk) - Interest expense decreased by $5.8 million to $11.0 million, mainly due to a lower average total borrowing amount and a lower average interest rate on revolving debt[163](index=163&type=chunk) - Other income (expense) was a negative $0.9 million, primarily due to unrealized losses on diesel fuel derivatives[164](index=164&type=chunk) - The effective income tax rates for 2020 and 2019 were **25.5% and 23.6%**, respectively, with the increase primarily attributable to the impact of the sale of distribution centers[165](index=165&type=chunk) [2021 Guidance](index=34&type=section&id=2021%20Guidance) - Due to economic uncertainty and demand volatility caused by the COVID-19 pandemic, the company is currently unable to provide full-year guidance for 2021[166](index=166&type=chunk) - As of March 5, 2021, the company expects **low-single-digit comparable sales growth for the first quarter of 2021**, with a gross margin rate flat to slightly up compared to last year, higher selling and administrative expenses, and diluted earnings per share projected to be between **$1.30 and $1.45**[167](index=167&type=chunk) [Capital Resources and Liquidity](index=34&type=section&id=Capital%20Resources%20and%20Liquidity) - On August 31, 2018, the company entered into a **$700 million five-year unsecured credit agreement** (2018 Credit Agreement), which matures on August 31, 2023[168](index=168&type=chunk) - The 2018 Credit Agreement contains financial and other covenants, such as restrictions on debt, liens, and investments, as well as requirements to maintain a leverage ratio and a fixed charge coverage ratio[168](index=168&type=chunk) - On August 7, 2019, the company entered into a **$70 million 2019 Term Note**, secured by equipment at its California distribution center, with a fixed interest rate of 3.3%, maturing on May 7, 2024[169](index=169&type=chunk) - The company's primary sources of liquidity are cash flows from operating activities and borrowings under the 2018 Credit Agreement; as of January 30, 2021, the company had **no borrowings** under the 2018 Credit Agreement and **$693.3 million of available borrowing capacity**[170](index=170&type=chunk) - On June 12, 2020, the company completed the sale and leaseback of its distribution centers in Columbus, OH; Durant, OK; Montgomery, AL; and Tremont, PA, for a total sales price of **$725 million**, resulting in a net sales gain of $586.9 million and a gain on sale of $463.1 million[171](index=171&type=chunk) - In 2020, the company invested a portion of the sale and leaseback proceeds in money market funds, commercial paper, and treasury bills; as of January 30, 2021, total investments in money market funds were **$175.1 million**[172](index=172&type=chunk) - In 2020, cash and cash equivalents increased by **$506.9 million to $559.6 million**[173](index=173&type=chunk) - In August 2020, the Board of Directors authorized the repurchase of up to **$500 million** of common stock (2020 Repurchase Authorization); in 2020, the company repurchased **3.8 million shares** for $172.8 million under this authorization[174](index=174&type=chunk) - In 2020, the company declared and paid quarterly cash dividends of **$0.30 per share**, totaling $47.0 million[175](index=175&type=chunk) Key Components of Cash Flows (Fiscal 2019-2020, in thousands of dollars) | Metric | 2020 | 2019 | Change | |:---|:---|:---|:---| | Net cash provided by operating activities | $399,349 | $338,970 | $60,379 | | Net cash provided by (used in) investing activities | $452,987 | $(74,480) | $527,467 | | Net cash used in financing activities | $(345,501) | $(257,803) | $(87,698) | - Cash flow from operating activities increased by **$60.4 million to $399.3 million**, primarily driven by higher net income and an increase in income taxes payable[176](index=176&type=chunk) - Cash flow from investing activities increased by **$527.5 million**, from an outflow of $74.5 million in 2019 to an inflow of $453.0 million in 2020, mainly due to increased cash proceeds from the sale of property and equipment and lower capital expenditures[177](index=177&type=chunk) - Cash outflow from financing activities increased by **$87.7 million to $345.5 million**, primarily due to higher net repayments of long-term debt and increased payments for treasury stock repurchases, partially offset by higher net financing proceeds from the sale and leaseback transaction[178](index=178&type=chunk)[179](index=179&type=chunk) [Contractual Obligations](index=36&type=section&id=Contractual%20Obligations) Contractual Obligations (as of January 30, 2021, in thousands of dollars) | Obligation Type | Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | |:---|:---|:---|:---|:---|:---| | Long-term debt | $53,293 | $16,076 | $31,900 | $5,317 | — | | Operating lease obligations | 2,486,847 | 362,784 | 704,150 | 505,290 | 914,623 | | Finance lease obligations | 4,602 | 3,820 | 710 | 72 | — | | Purchase obligations | 1,123,719 | 932,543 | 138,151 | 53,024 | 1 | | Other long-term liabilities | 250,106 | 43,562 | 23,391 | 24,315 | 158,838 | | Total contractual obligations | $3,918,567 | $1,358,785 | $898,302 | $588,018 | $1,073,462 | - Long-term debt includes outstanding borrowings and expected interest on the 2019 Term Note; as of January 30, 2021, the company had no borrowings under the 2018 Credit Agreement but had **$41.0 million in outstanding letters of credit**[182](index=182&type=chunk) - Operating lease obligations include leases for retail stores and distribution centers, with future commitments of **$2.1444 billion**; the company has assessed the reasonable certainty of renewing or terminating existing leases to determine the lease term[183](index=183&type=chunk) - Purchase obligations include **$722.5 million in outstanding purchase orders for merchandise** (all due within one year) and **$401.2 million in other purchase obligations**, primarily related to distribution and transportation, information technology, print advertising, energy procurement, and store security, supply, and maintenance commitments[186](index=186&type=chunk) - Other long-term liabilities include **$213.8 million in financing obligations from the sale and leaseback transaction**, $32.8 million in non-qualified deferred compensation plan obligations, and $3.4 million in unrecognized tax benefits[187](index=187&type=chunk) [Off-Balance Sheet Arrangements](index=38&type=section&id=Off-Balance%20Sheet%20Arrangements) - Not applicable[188](index=188&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=38&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) - Management is required to make estimates, judgments, and assumptions in preparing financial statements, which affect the reported amounts of assets and liabilities, as well as revenues and expenses[189](index=189&type=chunk) - Merchandise inventory is valued at the lower of cost or market using the average cost retail inventory method, with market value determined based on estimated net realizable value[191](index=191&type=chunk)[239](index=239&type=chunk) - When management determines that the marketability of merchandise inventory has declined, markdowns for clearance activities and related costs are recorded when the pricing decision is made[192](index=192&type=chunk)[240](index=240&type=chunk) - The inventory shrink reserve is recorded as a reduction to inventory and charged to cost of sales, calculated as a percentage of sales from the last physical inventory date to the end of the reporting period[193](index=193&type=chunk)[241](index=241&type=chunk) - The company is self-insured for certain losses related to property, general liability, workers' compensation, and employee medical, dental, and prescription drug benefit claims; accrued insurance liabilities and related expenses are based on actual reported claims and estimates for claims incurred but not reported[194](index=194&type=chunk)[253](index=253&type=chunk) - As of January 30, 2021, a **10% change in the self-insured liability** would impact selling and administrative expenses, operating profit, and income before taxes by approximately **$7.9 million**[194](index=194&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk from investments and borrowings, and market risk related to diesel fuel derivatives - The company is exposed to interest rate risk, primarily from its investments and borrowings under the 2018 Credit Agreement[195](index=195&type=chunk) - As of January 30, 2021, the company had no borrowings under the 2018 Credit Agreement; a 1% increase in floating interest rates on investments and future borrowings would not currently affect its financial condition, operating results, or liquidity[195](index=195&type=chunk) - The synthetic lease agreement for the California distribution center has a cross-default provision, and a **1% increase in interest rates could increase rent expense by approximately $0.9 million**[195](index=195&type=chunk) - The company uses derivative instruments to hedge against market fluctuations in diesel fuel prices and does not use them for speculative purposes[196](index=196&type=chunk)[271](index=271&type=chunk) - As of January 30, 2021, the company held collar-style derivative instruments covering **3.6 million gallons of diesel fuel**[196](index=196&type=chunk)[198](index=198&type=chunk) - As of January 30, 2021, a **10% change in the forward curve of diesel prices** could impact other income (expense) by approximately **$1.1 million**[197](index=197&type=chunk) Diesel Fuel Derivative Instruments (as of January 30, 2021, in thousands of gallons and dollars) | Calendar Year of Expiration | Diesel Put Options (in thousands of gallons) | Derivative Call Options (in thousands of gallons) | Fair Value Asset (Liability) (in thousands of dollars) | |:---|:---|:---|:---| | 2021 | 2,400 | 2,400 | (525) | | 2022 | 1,200 | 1,200 | (212) | | Total | 3,600 | 3,600 | $(737) | [Financial Statements and Supplementary Data](index=40&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's consolidated financial statements, related notes, and audit reports on internal control and financials - The independent registered public accounting firm, Deloitte & Touche LLP, issued an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting as of January 30, 2021[199](index=199&type=chunk) - Deloitte & Touche LLP issued an **unqualified opinion** on the company's consolidated financial statements as of January 30, 2021, and February 1, 2020[207](index=207&type=chunk) - Critical audit matters included the **measurement of the inventory valuation reserve**, involving management's estimates and assumptions regarding markdowns for slow-moving inventory and the shrink reserve[212](index=212&type=chunk)[213](index=213&type=chunk)[216](index=216&type=chunk) - Critical audit matters also included the **measurement of the insurance valuation reserve**, involving management's actuarial calculations and assumptions for self-insured losses related to general liability and workers' compensation[218](index=218&type=chunk)[219](index=219&type=chunk) Consolidated Statements of Operations and Comprehensive Income (Fiscal 2018-2020, in thousands of dollars, except per share amounts) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | Net sales | $6,199,186 | $5,323,180 | $5,238,105 | | Cost of sales | 3,701,800 | 3,208,498 | 3,116,210 | | Gross profit | 2,497,386 | 2,114,682 | 2,121,895 | | Selling and administrative expenses | 1,965,555 | 1,823,409 | 1,778,416 | | Depreciation expense | 138,336 | 134,981 | 124,970 | | Gain on sale of distribution centers | (463,053) | (178,534) | — | | Operating profit | 856,548 | 334,826 | 218,509 | | Interest expense | (11,031) | (16,827) | (10,338) | | Other income (expense) | (911) | (451) | (558) | | Income before income taxes | 844,606 | 317,548 | 207,613 | | Income tax expense | 215,415 | 75,084 | 50,719 | | Net income and comprehensive income | $629,191 | $242,464 | $156,894 | | Basic earnings per share | $16.46 | $6.18 | $3.84 | | Diluted earnings per share | $16.11 | $6.16 | $3.83 | Consolidated Balance Sheets (as of January 30, 2021, and February 1, 2020, in thousands of dollars) | Assets | Jan 30, 2021 | Feb 1, 2020 | |:---|:---|:---| | **Assets** | | | | Cash and cash equivalents | $559,556 | $52,721 | | Inventories | 940,294 | 921,266 | | Other current assets | 85,939 | 89,962 | | **Total current assets** | **1,585,789** | **1,063,949** | | Operating lease right-of-use assets | 1,649,009 | 1,202,252 | | Property and equipment, net | 717,216 | 849,147 | | Deferred income taxes | 16,329 | 4,762 | | Other assets | 68,914 | 69,171 | | **Total assets** | **$4,037,257** | **$3,189,281** | | **Liabilities and Shareholders' Equity** | | | | **Current liabilities** | | | | Accounts payable | $398,433 | $378,241 | | Current operating lease liabilities | 226,075 | 212,144 | | Property, payroll and other taxes | 109,694 | 82,109 | | Accrued operating expenses | 138,331 | 118,973 | | Insurance reserves | 34,660 | 36,131 | | Accrued wages and salaries | 49,830 | 39,292 | | Income taxes payable | 43,601 | 3,930 | | **Total current liabilities** | **1,000,624** | **870,820** | | Long-term debt | 35,764 | 279,464 | | Non-current operating lease liabilities | 1,465,433 | 1,035,377 | | Deferred income taxes | 7,762 | 48,610 | | Insurance reserves | 57,452 | 57,567 | | Unrecognized tax benefits | 11,304 | 10,722 | | Other liabilities | 181,187 | 41,257 | | **Shareholders' Equity** | | | | Common stock | 1,175 | 1,175 | | Treasury stock | (2,709,259) | (2,546,232) | | Additional paid-in capital | 634,813 | 620,728 | | Retained earnings | 3,351,002 | 2,769,793 | | **Total shareholders' equity** | **1,277,731** | **845,464** | | **Total liabilities and shareholders' equity** | **$4,037,257** | **$3,189,281** | Consolidated Statements of Shareholders' Equity (Fiscal 2018-2020, in thousands of dollars) | Metric | Balance at Feb 3, 2018 | Comprehensive Income | Dividends Declared | Purchase of Common Stock | Share-Based Compensation | Balance at Feb 2, 2019 | Comprehensive Income | Dividends Declared | Purchase of Common Stock | Share-Based Compensation | Balance at Feb 1, 2020 | Comprehensive Income | Dividends Declared | Purchase of Common Stock | Share-Based Compensation | Balance at Jan 30, 2021 | |:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---| | Common stock | $1,175 | — | — | — | — | $1,175 | — | — | — | — | $1,175 | — | — | — | — | $1,175 | | Treasury stock | $(2,422,396) | — | — | $(107,830) | — | $(2,506,086) | — | — | $(55,347) | — | $(2,546,232) | — | — | $(175,642) | — | $(2,709,259) | | Additional paid-in capital | $622,550 | — | — | $(3,920) | $26,335 | $622,685 | — | — | — | $13,051 | $620,728 | — | — | — | $26,155 | $634,813 | | Retained earnings | $2,468,258 | $156,894 | $(49,885) | — | — | $2,575,267 | $242,464 | $(48,286) | — | — | $2,769,793 | $629,191 | $(47,982) | — | — | $3,351,002 | | **Total** | **$669,587** | **$156,894** | **$(49,885)** | **$(111,750)** | **$26,335** | **$693,041** | **$242,464** | **$(48,286)** | **$(55,347)** | **$13,051** | **$845,464** | **$629,191** | **$(47,982)** | **$(175,642)** | **$26,155** | **$1,277,731** | Consolidated Statements of Cash Flows (Fiscal 2018-2020, in thousands of dollars) | Metric | 2020 | 2019 | 2018 | |:---|:---|:---|:---| | **Operating Activities** | | | | | Net income | $629,191 | $242,464 | $156,894 | | Depreciation and amortization expense | 138,848 | 135,686 | 114,025 | | Non-cash lease expense | 246,442 | 229,143 | — | | Deferred income taxes | (52,415) | 52,374 | 5,353 | | Non-cash share-based compensation expense | 26,155 | 13,051 | 26,335 | | Non-cash impairment charges | 1,792 | 3,986 | 141 | | (Gain) loss on disposal of property and equipment | (462,916) | (177,996) | 732 | | Unrealized (gain) loss on fuel derivatives | (294) | 346 | 1,075 | | Change in inventories | (19,028) | 48,295 | (96,772) | | Change in accounts payable | 20,193 | (18,662) | 45,677 | | Change in operating lease liabilities | (250,131) | (215,956) | — | | Change in current income taxes | 56,564 | (4,442) | (14,108) | | Change in other current assets | (10,238) | (5,836) | (7,055) | | Change in other current liabilities | 55,775 | 36,962 | (11,637) | | Change in other assets | (90) | (5,499) | 1,985 | | Change in other liabilities | 19,501 | 5,054 | 11,415 | | **Net cash provided by operating activities** | **399,349** | **338,970** | **234,060** | | **Investing Activities** | | | | | Capital expenditures | (135,220) | (265,203) | (232,402) | | Cash proceeds from sale of property and equipment | 588,258 | 190,741 | 519 | | Acquisition of assets under synthetic lease | — | — | (128,872) | | Payments for purchase of intangible assets | — | — | (15,750) | | Other | (51) | (18) | 32 | | **Net cash provided by (used in) investing activities** | **452,987** | **(74,480)** | **(376,473)** | | **Financing Activities** | | | | | Net (repayments) proceeds from long-term debt | (243,227) | (80,609) | 174,300 | | Net financing proceeds from sale and leaseback | 123,435 | — | — | | Payments on finance lease obligations | (3,648) | (73,469) | (3,908) | | Dividends paid | (46,964) | (48,421) | (50,608) | | Proceeds from exercise of stock options | 493 | 200 | 1,859 | | Payments for purchase of treasury stock | (175,642) | (55,347) | (111,750) | | Proceeds from synthetic lease | — | — | 128,872 | | Payments for debt issuance costs | — | (150) | (1,495) | | Other | 52 | (7) | 1 | | **Net cash (used in) provided by financing activities** | **(345,501)** | **(257,803)** | **137,271** | | **Increase (decrease) in cash and cash equivalents** | **506,835** | **6,687** | **(5,142)** | | Cash and cash equivalents: beginning of year | 52,721 | 46,034 | 51,176 | | Cash and cash equivalents: end of year | $559,556 | $52,721 | $46,034 | [Notes to Consolidated Financial Statements](index=49&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes covering accounting policies, financial statement components, and other required disclosures [NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=49&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - The company is a community discount retailer operating **1,408 stores** and an e-commerce platform in the United States as of January 30, 2021[232](index=232&type=chunk) - The consolidated financial statements are prepared in accordance with U.S Generally Accepted Accounting Principles (GAAP) and include all majority-owned and controlled subsidiaries[233](index=233&type=chunk) - Management is required to make estimates, judgments, and assumptions in preparing the financial statements, which affect reported amounts[234](index=234&type=chunk) - The company's fiscal year ends on the Saturday closest to January 31; fiscal 2020, 2019, and 2018 were all 52-week years[235](index=235&type=chunk) - The company is managed as a single business segment of discount retailing[236](index=236&type=chunk) - Cash and cash equivalents primarily include bank deposits, outstanding checks, credit and debit card receivables, and highly liquid investments[237](index=237&type=chunk) - Merchandise inventory is valued at the lower of cost or market using the average cost retail inventory method[239](index=239&type=chunk) - Depreciation and amortization of property and equipment are calculated using the straight-line method over their estimated useful lives[243](index=243&type=chunk) - The company reviews its long-lived assets for impairment indicators annually[246](index=246&type=chunk) - The company acquired the Broyhill trademark and trade name in 2018, which has an indefinite life and is tested for impairment annually[247](index=247&type=chunk) - The company offers a 401(k) savings plan and a non-qualified deferred compensation plan, with matching contribution expenses of **$9.2 million** in 2020[248](index=248&type=chunk) - The company uses the asset and liability method to account for income taxes, recognizing deferred tax assets and liabilities[249](index=249&type=chunk) - The company is self-insured for property, general liability, workers' compensation, and employee medical benefit claims[253](index=253&type=chunk) - The fair value measurement of the company's financial instruments uses a three-level hierarchy[254](index=254&type=chunk)[255](index=255&type=chunk) - Sales revenue is recognized when the customer obtains ownership of the merchandise[256](index=256&type=chunk) - Cost of sales includes the cost of merchandise, net of discounts and rebates, markdowns, and inventory shrink[260](index=260&type=chunk) - Selling and administrative expenses include store expenses, warehousing, distribution, outbound transportation, advertising, procurement, insurance, and non-income tax costs[261](index=261&type=chunk) - In 2020, 2019, and 2018, distribution and outbound transportation costs were **$251.0 million, $191.8 million, and $180.5 million**, respectively[261](index=261&type=chunk) - Rent expense for operating leases is recognized on a straight-line basis over the lease term[264](index=264&type=chunk) - In 2020, 2019, and 2018, advertising expenses were **$102.8 million, $95.2 million, and $93.6 million**, respectively[265](index=265&type=chunk) - Share-based compensation expense is recognized as a selling and administrative expense for all awards expected to vest[266](index=266&type=chunk) - The company uses derivative instruments to hedge against market fluctuations in diesel fuel prices[271](index=271&type=chunk) - On February 2, 2020, the company adopted ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software, with no material impact[273](index=273&type=chunk) - On February 3, 2019, the company adopted ASU 2016-02, Leases (Topic 842), resulting in the recognition of **$1.11 billion in right-of-use assets** and **$1.138 billion in lease liabilities**[274](index=274&type=chunk)[275](index=275&type=chunk) [NOTE 2 – PROPERTY AND EQUIPMENT - NET](index=55&type=section&id=NOTE%202%20%E2%80%93%20PROPERTY%20AND%20EQUIPMENT%20-%20NET) Property and Equipment, Net (as of January 30, 2021, and February 1, 2020, in thousands of dollars) | Item | Jan 30, 2021 | Feb 1, 2020 | |:---|:---|:---| | Land and land improvements | $48,862 | $63,691 | | Buildings and leasehold improvements | 779,104 | 1,034,458 | | Fixtures and equipment | 870,074 | 884,051 | | Computer software costs | 213,042 | 196,449 | | Construction in progress | 27,455 | 22,038 | | **Property and equipment - at cost** | **1,938,537** | **2,200,687** | | Less: Accumulated depreciation and amortization | 1,221,321 | 1,351,540 | | **Property and equipment - net** | **$717,216** | **$849,147** | - In 2020, the company invested **$135.2 million in capital expenditures** and recorded **$138.3 million in depreciation expense**[278](index=278&type=chunk) - In 2020, the company disposed of **$123.8 million** in property and equipment costs related to the sale of four distribution centers[279](index=279&type=chunk) - In 2020, the company impaired property and equipment assets for four stores as a result of store impairment reviews, with an impairment charge of **$0.9 million**[280](index=280&type=chunk) [NOTE 3 – DEBT](index=56&type=section&id=NOTE%203%20%E2%80%93%20DEBT) - On August 31, 2018, the company entered into a **$700 million five-year unsecured credit agreement** (2018 Credit Agreement), which matures on August 31, 2023[284](index=284&type=chunk) - As of January 30, 2021, the company had **no borrowings** under the 2018 Credit Agreement, but had **$6.7 million in outstanding letters of credit**, with **$693.3 million of available borrowing capacity**[285](index=285&type=chunk) - On August 7, 2019, the company entered into a **$70 million 2019 Term Note**, secured by equipment at its California distribution center, with a fixed interest rate of 3.3%, maturing on May 7, 2024[286](index=286&type=chunk) Debt Composition (as of January 30, 2021, and February 1, 2020, in thousands of dollars) | Instrument | Jan 30, 2021 | Feb 1, 2020 | |:---|:---|:---| | 2019 Term Note | $50,264 | $64,291 | | 2018 Credit Agreement | — | 229,200 | | **Total debt** | **$50,264** | **$293,491** | | Less: Current portion of long-term debt | $(14,500) | $(14,027) | | **Long-term debt** | **$35,764** | **$279,464** | [NOTE 4 – FAIR VALUE MEASUREME

Big Lots, Inc. (NYSE:BIG) Q4 2020 Results Earnings Conference Call March 5, 2021 8:00 AM ET Company Participants Bruce Thorn - President and Chief Executive Officer Jonathan Ramsden - EVP, Chief Financial and Administrative Officer Conference Call Participants Spencer Hanus - Wolfe Research Joe Feldman - TAG Chandni Luthra - Goldman Sachs Peter Keith - Piper Sandler Anthony Chukumba - Loop Capital Markets Jason Haas - Bank of America Brad Thomas - KeyBanc Capital Markets Operator Ladies and gentlemen, good ...