Big Lots(US:BIG)2022-12-01 15:45Financial Data and Key Metrics Changes - Q3 net sales were $1.204 billion, a 9.8% decrease compared to $1.336 billion a year ago, driven by a comparable sales decrease of 11.7% [34] - Adjusted net loss for Q3 was $87 million, compared to a $4 million net loss in Q3 of 2021, with adjusted diluted loss per share at $2.99 versus $0.14 last year [35] - Gross margin rate for Q3 was 34%, down 490 basis points from the previous year, impacted by higher markdowns and freight costs [35] - Ending inventory cost was up 5.3% year-over-year at $1.345 billion, indicating a significant sequential improvement [39] Business Line Data and Key Metrics Changes - Seasonal comps grew 7% in Q3, driven by strong Halloween promotions, while furniture and home categories saw double-digit declines due to consumer pullback on high-ticket items [17][18] - The food category was up 1%, while consumables were down 5% in Q3, reflecting a mixed performance across categories [18] - Bargain procurement increased significantly, with 160% more bargains at retail compared to Q2 and about 90% more year-over-year [13] Market Data and Key Metrics Changes - The current economic environment is challenging, with inflation at a 40-year high and consumer sentiment historically low, affecting discretionary purchases [5][6] - The company is focusing on rural and small-town markets, where it outperforms with a strong assortment of furniture and home goods [27] Company Strategy and Development Direction - The company aims to increase the penetration of bargains and treasures in its assortment to two-thirds by the end of 2023, up from the high 40% range [22] - Plans include clearer communication of value to customers and optimizing the assortment to enhance the shopping experience [23][24] - The company is focused on driving productivity, reducing expenses, and making disciplined investment decisions to strengthen its business model [30] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing pressure from high inflation and consumer pullback on discretionary spending, particularly in furniture [19] - The company expects comps to remain in the low double-digit range for Q4, with a focus on improving gross margin sequentially [44][45] - Management is optimistic about the potential for increased bargains and treasures to drive sales momentum into 2023 [19][22] Other Important Information - The company opened 20 new stores and closed three, ending Q3 with 1,457 stores [40] - A quarterly cash dividend of $0.30 per common share was declared for Q3, payable on December 28, 2022 [43] - The company expects to deliver over $100 million in SG&A reductions this year, with approximately $70 million being structural savings [47] Q&A Session Summary Question: What is leading to the slowdown in Q4 comps? - Management noted that high inflation and a pullback in discretionary high-ticket items are significant factors affecting Q4 performance [52] Question: Do you expect destocking to be complete by the end of Q4? - Management expects to end the year with clean inventory and is optimistic about the capacity to pursue closeouts in 2023 [54] Question: How will the reduction of SKUs impact the business? - The reduction of unproductive SKUs is a broader initiative aimed at enhancing the assortment and fueling open-to-buy for differentiating products [76] Question: How is the company addressing gross margin challenges? - Management anticipates improvements in gross margin due to easing freight costs and reduced markdowns, with a long-term goal of returning to a gross margin of 40% or greater [62] Question: Is there a change in the long-term growth framework? - Management maintains its long-term targets, emphasizing that the current environment is a temporary challenge that will be addressed through strategic initiatives [88]