Big Lots(BIG) - 2024 Q4 - Annual Report

Part I Business Big Lots, Inc. operates as a home discount retailer in the U.S. with 1,392 stores and an e-commerce platform, focusing on value-driven merchandising and facing intense retail competition - As of February 3, 2024, Big Lots operated 1,392 stores in the U.S. and an e-commerce platform[87] - The company's merchandising strategy focuses on "Bargains" and "Extreme Bargains" (closeouts) to deliver value[92][111] - In 2023, approximately 21% of merchandise was purchased directly from overseas vendors, with 13% from China[112] - The BIG Rewards Program had approximately 20 million active members as of February 3, 2024, down from 21 million the previous year[115] - In 2023, the company ceased operations at its four forward distribution centers (FDCs) due to declining sales volume and to reduce expenses[99] Risk Factors The company faces significant operational, market, competitive, and financial risks, including potential failure of strategic initiatives, supply chain disruptions, intense competition, debt covenant compliance, and human capital challenges - The company's "Project Springboard" initiative aims to improve operating income by over $200 million, but failure to achieve these goals could adversely affect performance[178] - Global sourcing from foreign countries, including 13% of products from China in 2023, exposes the company to risks like tariffs, shipping costs, and political unrest[164][165] - The company faces intense and growing competition from other retailers in the online marketplace, which could reduce market share and margins[1] - Significant turnover in the senior management team is identified as a risk that could disrupt operations and impede the implementation of the business plan[6][175] - Covenants in the 2022 Credit Agreement and Term Loan Facility impose significant operating and financial restrictions, where a violation could lead to default and require immediate repayment of outstanding loans[13] - The company incurred significant asset impairment charges of $148.5 million in 2023 and $68.4 million in 2022 related to underperforming stores[210] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None Cybersecurity The company maintains a comprehensive information security program, overseen by a CISO and the Board's Audit Committee, to manage cybersecurity risks through annual assessments and various controls, with no material breaches identified to date - The company has an information security program that includes annual risk assessments and utilizes controls like EDR, IAM, MFA, and SIEM[19] - The Chief Information Security Officer (CISO), with 30 years of IT experience, has primary responsibility for the security program[21] - Oversight is provided by the Enterprise Risk Council and the Audit Committee of the Board of Directors, which receives quarterly briefings[20][44] - The company is not aware of any cybersecurity threat or breach that has materially affected its business, operations, or financial condition[215] Properties As of February 3, 2024, the company operates 1,392 mostly leased stores averaging 33,477 square feet, owns its headquarters and five distribution centers totaling nearly 9.0 million square feet, and completed 23 store sale-leaseback transactions in 2023 - The company operates 1,392 stores, with an average size of 33,477 sq. ft. All but three stores are leased[239][217] - In 2023, the company completed sale and leaseback transactions for 23 owned store locations[24] Store Lease Expirations | Fiscal Year: | Expiring Leases | Leases Without Options | |--------------|-----------------|------------------------| | 2024 | 172 | 31 | | 2025 | 212 | 31 | | 2026 | 245 | 46 | | 2027 | 171 | 40 | | 2028 | 214 | 39 | | Thereafter | 377 | 24 | Distribution Center Locations and Size | Location | Year Opened | Total Square Footage (in thousands) | Number of Stores Served | |------------------|-------------|-------------------------------------|-------------------------| | Columbus, OH | 1989 | 3,559 | 338 | | Montgomery, AL | 1996 | 1,411 | 315 | | Tremont, PA | 2000 | 1,295 | 302 | | Durant, OK | 2004 | 1,297 | 227 | | Apple Valley, CA | 2019 | 1,416 | 210 | | Total | | 8,978 | 1,392 | Legal Proceedings The company refers to Note 9 of the consolidated financial statements for information regarding legal proceedings - For information on legal proceedings, see Note 9 to the consolidated financial statements[47] Mine Safety Disclosures The company reports that there are no mine safety disclosures - None Information about our Executive Officers This section provides biographical information for the company's executive officers and other key employees as of April 18, 2024, detailing their roles and prior experience in areas such as marketing, supply chain, merchandising, and technology Executive Officers as of April 18, 2024 | Name | Age | Offices Held | |---|---|---| | Bruce K. Thorn | 56 | President and Chief Executive Officer | | Jonathan E. Ramsden | 59 | Executive Vice President, Chief Financial Officer and Chief Administrative Officer | | Ronald A. Robins, Jr. | 60 | Executive Vice President, Chief Legal and Governance Officer, General Counsel and Corporate Secretary | | Michael A. Schlonsky | 57 | Executive Vice President, Chief Human Resources Officer | - The report lists key employees responsible for marketing, stores, supply chain, merchandising for various categories (Home, Furniture, Seasonal, Food, Consumables), and technology[246][32][33] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under "BIG", with approximately 893 registered holders as of April 12, 2024, and has not repurchased shares since Q4 2021, significantly underperforming market indices over the last five fiscal years - The company's common stock is listed on the NYSE under the symbol "BIG"[55] - The company has not made any repurchases under its share repurchase program since the fourth quarter of 2021, with $159.4 million remaining authorized for repurchase as of February 3, 2024[16][250] Five-Year Cumulative Total Shareholder Return (Assuming $100 Investment on Feb 2, 2019) | Company / Index | Feb 2020 | Jan 2021 | Jan 2022 | Jan 2023 | Feb 2024 | |---|---|---|---|---|---| | Big Lots, Inc. | $90.13 | $208.77 | $142.58 | $63.48 | $22.42 | | S&P 500 Index | $121.56 | $142.53 | $172.46 | $161.03 | $199.42 | | S&P 500 Retailing Index | $120.61 | $170.52 | $180.58 | $149.54 | $210.02 | Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2023, Big Lots reported a significant 13.6% decrease in net sales and a net loss of $481.9 million, driven by macroeconomic pressures and increased expenses, while implementing strategic plans like "Operation North Star" and "Project Springboard" to improve profitability and liquidity through cost savings and asset monetization Fiscal 2023 vs 2022 Key Financial Results | Metric | 2023 (in millions) | 2022 (in millions) | Change | |---|---|---|---| | Net Sales | $4,722.1 | $5,468.3 | -13.6% | | Comparable Sales | | | -13.5% | | Gross Margin Rate | 35.7% | 35.0% | +70 bps | | Operating Loss | ($387.4) | ($261.5) | Increased Loss | | Diluted Loss Per Share | ($16.53) | ($7.30) | Increased Loss | | Inventory | $953.3 | $1,147.9 | -17.0% | - The company's strategic transformation plan, "Operation North Star," focuses on driving growth, funding the journey, and creating shareholder value through five key actions[74][75][76] - Launched "Project Springboard," a cost reduction initiative aiming for over $200 million in operating income improvement from cost of goods sold (40%), other gross margin improvements (40%), and SG&A reductions (20%)[64][272] - Completed sale and leaseback transactions for its Apple Valley distribution center and 23 owned stores, generating net proceeds of $332.1 million and a gain of $212.5 million[59] - Recorded a $146.0 million valuation allowance on deferred tax assets, which significantly increased income tax expense[60] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk on its variable-rate borrowings under the 2022 Credit Agreement, with a hypothetical 1% increase impacting operating results by approximately $4.1 million based on $406.1 million in borrowings as of February 3, 2024 - The company is exposed to interest rate risk on its borrowings under the 2022 Credit Agreement[307] - At February 3, 2024, borrowings under the 2022 Credit Agreement totaled $406.1 million, where a 1% increase in the variable interest rate would result in an approximate $4.1 million impact on operating results[307] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal year 2024, with Deloitte & Touche LLP providing an unqualified opinion on both the financial statements and internal controls, highlighting Critical Audit Matters related to Inventory Valuation, Asset Impairment, and Insurance Reserves - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[310][326] Consolidated Statement of Operations Highlights (in thousands) | Metric | 2023 | 2022 | 2021 | |---|---|---|---| | Net sales | $4,722,099 | $5,468,329 | $6,150,603 | | Gross margin | $1,686,611 | $1,913,503 | $2,397,007 | | Operating (loss) profit | ($387,357) | ($261,500) | $239,753 | | Net (loss) income | ($481,876) | ($210,708) | $177,778 | Consolidated Balance Sheet Highlights (in thousands) | Metric | Feb 3, 2024 | Jan 28, 2023 | |---|---|---| | Total Current Assets | $1,086,023 | $1,285,314 | | Total Assets | $3,325,309 | $3,690,931 | | Total Current Liabilities | $831,019 | $919,854 | | Long-term debt | $406,271 | $301,400 | | Total Shareholders' Equity | $284,495 | $763,907 | - Critical Audit Matters identified by the auditor include: Inventory Valuation Reserves, Impairment of Store Level Long-Lived Assets, and Insurance Valuation Reserves for General Liability and Workers' Compensation[333][337][400] - Subsequent to the fiscal year-end, on April 18, 2024, the company entered into a $200 million "first in, last out" delayed draw term loan facility and amended its 2022 Credit Agreement[520][553][560] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None Controls and Procedures Management concluded that the company's disclosure controls and procedures, as well as internal control over financial reporting, were effective as of February 3, 2024, with no material changes occurring during the most recent fiscal quarter - Management concluded that disclosure controls and procedures were effective as of the end of the period[563] - Management concluded that the company maintained effective internal control over financial reporting as of February 3, 2024[564] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[566] Other Information The company reports that no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fourth quarter of fiscal 2023 - During the fourth quarter, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement[542] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable Part III Directors, Executive Officers and Corporate Governance This section incorporates by reference information from the company's 2024 Proxy Statement and Part I of this Form 10-K regarding directors, executive officers, corporate governance, and related compliance details - Information regarding directors, corporate governance, and executive officers is incorporated by reference from the 2024 Proxy Statement and Part I of this Form 10-K[586] Executive Compensation This section incorporates by reference information from the company's 2024 Proxy Statement concerning director and executive compensation, including the Compensation Committee Report and details on related interlocks and insider participation - Information regarding executive compensation is incorporated by reference from the 2024 Proxy Statement[569] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details the company's equity compensation plans as of February 3, 2024, including securities available for future issuance, with further security ownership information incorporated by reference from the 2024 Proxy Statement Equity Compensation Plan Information (as of Feb 3, 2024) | Plan Category | Securities to be issued upon exercise () | Weighted-average exercise price ($) | Securities remaining available for future issuance () | |---|---|---|---| | Equity compensation plans approved by security holders | 3,409,988 | — | 1,317,691 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 3,409,988 | — | 1,317,691 | - Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the 2024 Proxy Statement[592] Certain Relationships and Related Transactions, and Director Independence This section incorporates by reference information from the company's 2024 Proxy Statement regarding director independence and related person transactions - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Proxy Statement[593] Principal Accountant Fees and Services This section incorporates by reference information from the 2024 Proxy Statement's "Audit Committee Disclosure" regarding fees paid to Deloitte & Touche LLP and the company's pre-approval policy for audit and non-audit services - Information regarding principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement[572] Part IV Exhibits and Financial Statement Schedules This section lists all documents filed as exhibits to the Form 10-K, including an index to consolidated financial statements and various agreements, with all financial statement schedules omitted as not required or included elsewhere - This section provides an index of the financial statements and a list of all exhibits filed with the Form 10-K[596] - All financial statement schedules have been omitted because they are not required, not applicable, or the information is included within the consolidated financial statements or notes[575] Form 10-K Summary This item is not applicable to the company - None