8-K: Big Lots Reports Q4 2023 Results, Sees Path to Positive Comps in 2024

Big Lots reports improved Q4 results with adjusted operating profit, and anticipates continued improvements and a return to positive comparable sales in 2024.

Summary

• Big Lots reported a net loss of $30.7 million, or $1.05 per share, for the fourth quarter of fiscal 2023.
• This includes a net after-tax loss of $22.4 million, or $0.77 per share, related to distribution center closure costs, impairment charges, and Project Springboard fees, partially offset by real estate gains and a tax benefit.
• The adjusted net loss for the quarter was $8.3 million, or $0.28 per share, which is the same as the adjusted net loss per share in Q4 2022.
• Net sales for Q4 2023 were $1.432 billion, a 7.2% decrease compared to $1.543 billion in the same period last year, with comparable sales down 8.6%.
• The company achieved over 60% bargain penetration in Q4, exceeding their initial goal of 33%, and expects to reach 75% in 2024.
• Big Lots expects to realize most of the $200 million+ bottom-line opportunities through Project Springboard.
• The company reduced inventory by nearly $200 million and monetized assets worth over $300 million in 2023.
• Net liquidity at the end of Q4 was $254 million, with a significant free cash flow generation that reduced the ABL balance.
• For Q1 2024, the company expects comparable sales to improve relative to Q4 and be in the mid-single-digit negative range.
• The company anticipates a significant improvement in gross margin rate for Q1 2024, up between 200-250 basis points.

Sentiment

Score: 6

Explanation: The sentiment is cautiously optimistic. While the company shows signs of improvement with adjusted operating profit and cost reductions, it still faces challenges with sales declines and a challenging macroeconomic environment. The potential for a capital raise also adds a layer of uncertainty.

Positives

• The company achieved adjusted operating profit in Q4 2023, the first in two years.
• Big Lots exceeded its bargain penetration goal for 2023, reaching over 60% in Q4.
• The company is on track to achieve $200 million+ in bottom-line benefits through Project Springboard.
• Big Lots has significantly reduced costs, inventory, and capital expenditures.
• The company has improved its net customer value perception score by nearly 11% year over year in Q4.
• Big Lots is seeing sequential improvements in comparable sales and gross margin rate.
• The company has a clear path to positive comparable sales as 2024 progresses.
• The company has successfully monetized assets, generating over $300 million.
• Big Lots has launched a mobile app to improve customer experience.
• The company has reduced its long-term debt by $127 million in Q4.

Negatives

• Big Lots reported a net loss of $30.7 million, or $1.05 per share, for the fourth quarter of fiscal 2023.
• Net sales for Q4 2023 decreased by 7.2% compared to the same period last year.
• Comparable sales decreased by 8.6% in Q4 2023.
• The company is still experiencing a net loss, although adjusted figures show improvement.
• The company is not providing EPS guidance for Q1 2024.
• The company expects to remain in a three-year cumulative loss position, which requires the company to record valuation allowances against deferred tax assets.
• The company closed 39 stores in Q4 2023.
• The company's hard home category experienced a modest deceleration relative to Q3 on a year-over-year basis.
• The company's full year adjusted operating loss of 7.3% was down 350 basis points to last year.
• The company's full year sales were down 13.5% on a comparable basis to 2022.

Risks

• The company faces a challenging macroeconomic environment, including potential fluctuations in interest rates and supply chain disruptions.
• Big Lots is still working to return to positive comparable sales and profitability.
• The company is evaluating additional financing options, indicating potential financial pressures.
• The company is not providing EPS guidance for Q1 2024, suggesting uncertainty in earnings.
• The company is in a three-year cumulative loss position, which impacts its ability to record tax benefits.
• The company's furniture business is still down significantly compared to 2019 levels.
• The company's hard home category experienced a modest deceleration relative to Q3 on a year-over-year basis.
• The company is still working to improve the profitability of its eCommerce channel.
• The company is facing competitive pressures in the discount retail market.
• The company is dependent on the availability of brand name closeout merchandise.

Future Outlook

Big Lots expects continued sequential improvement in comparable sales throughout 2024, with a path to positive comparable sales. The company anticipates significant gross margin rate improvement in every quarter versus last year, driven by Project Springboard and other initiatives. They also expect to grow their bargains penetration to 75% of sales.

Management Comments

• Bruce Thorn, President and CEO, stated that the company did what they said they would do for the third quarter in a row, and finished the year in a much better place than where they started.
• Bruce Thorn mentioned that the company is moving aggressively to accelerate their transformation, return to positive comparable sales, and continue to improve their gross margin rate.
• Bruce Thorn highlighted that progress on the five key actions enabled them to deliver adjusted operating profit growth in Q4, marking the first quarter of adjusted operating profit in two years.
• Bruce Thorn stated that the company is focused on ensuring they have the liquidity to navigate through the current economic challenges.
• Jonathan Ramsden, EVP and Chief Financial Officer, mentioned that the company is confident that the five key actions and Project Springboard will continue forward momentum in 2024.
• Jonathan Ramsden stated that the company expects quarterly year-over-year improvements to continue through the year, with a path to positive comps as the year progresses.

Industry Context

The announcement reflects the challenges faced by discount retailers in a competitive market, with Big Lots focusing on cost management, inventory reduction, and strategic initiatives to improve performance. The emphasis on bargains and extreme value aligns with consumer trends seeking value in the current economic environment. The company's omnichannel efforts also reflect the broader industry trend of integrating online and offline retail experiences.

Comparison to Industry Standards

• Big Lots' comparable sales decline of 8.6% in Q4 2023 is worse than some of its competitors, such as Dollar General and Dollar Tree, which have shown more resilience in comparable sales.
• The company's focus on increasing bargain penetration to 75% is a strategy similar to other off-price retailers like TJX Companies, which emphasize value and closeout merchandise.
• Big Lots' efforts to reduce inventory by 17% year-over-year is a positive step, but it is important to compare this to industry benchmarks to assess its effectiveness.
• The company's adjusted operating profit in Q4 2023 is a positive sign, but it is still below the profitability levels of some of its more successful competitors.
• Big Lots' net liquidity of $254 million is a concern, as it is lower than some of its competitors, which may limit its ability to invest in growth initiatives.
• The company's Project Springboard initiative is similar to cost-cutting programs implemented by other retailers, but its success will depend on effective execution.
• Big Lots' omnichannel efforts are in line with industry trends, but it needs to improve the profitability of its eCommerce channel to compete effectively.
• The company's focus on extreme bargains is a strategy that is also used by other discount retailers, but it needs to differentiate itself to attract and retain customers.
• Big Lots' furniture business is still down significantly compared to 2019 levels, which is a concern compared to other retailers that have seen a recovery in this category.
• The company's hard home category experienced a deceleration relative to Q3, which is a concern compared to other retailers that have seen growth in this category.

Stakeholder Impact

• Shareholders may see a positive impact from the company's improved operating profit and cost reductions, but also face risks from sales declines and potential capital raises.
• Employees may benefit from the company's efforts to improve store productivity and attract top talent.
• Customers may benefit from the company's focus on bargains and extreme value, as well as improved omnichannel experiences.
• Suppliers may see increased opportunities as the company expands its sourcing of bargain and closeout merchandise.
• Creditors may be concerned about the company's financial challenges and potential need for additional financing.

Next Steps

• The company will continue to focus on its five key actions to drive improvements.
• Big Lots will continue to execute Project Springboard to achieve cost savings and improve gross margin.
• The company will continue to evaluate additional financing options.
• Big Lots will focus on growing its bargain penetration to 75% of sales.
• The company will continue to improve its omnichannel platform and customer experience.

Key Dates

Keywords

bargains, discount, retail, closeouts, omnichannel, Project Springboard, gross margin, comparable sales, inventory, liquidity