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Big Lots Reports Record Q2 Results

·19 mins read

COMPARABLE SALES INCREASE 31.3%; UP STRONGLY ACROSS BOTH STORES AND ECOMMERCE

GAAP EPS $11.29; ADJUSTED EPS $2.75

ADJUSTED EPS MORE THAN FIVE TIMES PRIOR YEAR

COLUMBUS, Ohio, Aug. 28, 2020 /PRNewswire/ -- Big Lots, Inc. (NYSE: BIG) today reported net income of $452.0 million, or $11.29 per diluted share, for the second quarter of fiscal 2020 ended August 1, 2020. This result includes a one-time, after-tax benefit of $341.9 million, or $8.54 per diluted share, associated with the distribution centers sold as part of the previously announced sale/leaseback transactions that closed during the quarter. Excluding this benefit, adjusted net income was $110.1 million, or $2.75 per diluted share (see non-GAAP table included later in this release), which compares to the company's guidance for the second quarter, as provided on June 26, 2020, of $2.50 to $2.75 per diluted share (non-GAAP). Adjusted net income includes approximately $10 million of additional store, distribution center, and corporate bonus expense that was not contemplated in the company's June 26 guidance. Adjusted net income for the second quarter of fiscal 2019 was $20.6 million, or $0.53 per diluted share (non-GAAP).

Net sales for the second quarter of fiscal 2020 totaled $1,644 million, a 31.3% increase compared to $1,252 million for the same period last year, with the growth resulting from a 31.3% increase in comparable sales, and sales growth from new and relocated non-comp stores, offset by a slightly lower store count year-over-year.

Commenting on today's announcement, Bruce Thorn, President and CEO of Big Lots stated, "I am delighted with our record-breaking results in Q2. Our comp increase was the best in the company's history, and adjusted EPS was the most we've reported in a second quarter, and more than five times what we reported a year ago. Comp sales were driven by strong results both in-store, where traffic and basket were each up double digits, and on-line, which drove almost five comp points, and where we acquired more new customers than in any prior quarter.

I continue to be very proud of how our team has responded to the challenges over the past six months. The results in Q2 were made possible by exceptional teamwork across the entire organization, and I want to thank our associates in our stores, the distribution centers, and our corporate headquarters for their dedication, compassion and tireless efforts. Throughout, we have maintained our commitment to serving our customers and our communities in as safe and healthy environment as possible."

Mr. Thorn continued, "Looking forward, the third quarter is off to a strong start and I am confident that our Operation North Star strategies will continue to drive top line growth, increase customer engagement, and deliver tremendous leverage in our business. With our assortment of everyday essentials and stay-at-home products, we are well positioned for what appears to be a new normal. Our balanced offering of thoughtfully curated merchandise, neverouts, and closeouts, differentiates us from the competition and continues to surprise and delight our customers with tremendous value. Our operating results under Operation North Star, along with our commitment to disciplined capital management, position us to continue driving significant shareholder value."








Earnings per diluted share









Q2 2020


Q2 2019








Earnings per diluted share


$11.29


$0.16


Gain associated with the distribution centers included in the
sale/leaseback transactions less related expenses (1)


($8.54)


-


Impact of costs associated with early implementation phases
of the strategic business transformation review (1)


-


$0.37








Earnings per diluted share - adjusted basis


$2.75


$0.53








(1) Non-GAAP detailed reconciliation provided in our statements below.

Inventory and Cash Management

Inventory ended the second quarter of fiscal 2020 at $714 million compared to $874 million for the same period last year with the 18% decrease resulting from strong sales results in all merchandise categories in the quarter and a slightly lower store count year-over-year.

The company ended the second quarter of fiscal 2020 with $899 million of Cash and Cash Equivalents and $43 million of long-term debt, compared to $54 million of Cash and Cash Equivalents and $468 million of long-term debt as of the end of the second quarter of fiscal 2019.

Share Repurchase Authorization

As announced in a separate press release, on August 27, 2020, the company's Board of Directors authorized the repurchase of up to $500 million of the company's outstanding common shares. The authorization may be utilized to repurchase shares in the open market and/or in privately negotiated transactions at the company's discretion, subject to market conditions and other factors. Pursuant to the authorization, shares may be repurchased commencing September 1, 2020, and the authorization is open-ended.

Dividend

Also announced in a separate press release, on August 27, 2020, the Board of Directors declared a quarterly cash dividend of $0.30 per common share. This dividend payment of approximately $12 million will be payable on September 25, 2020, to shareholders of record as of the close of business on September 11, 2020.

Company Outlook

As of March 30, 2020, the company withdrew its full year guidance for fiscal 2020. At this point, the company continues to believe it does not have sufficient visibility to reinstate full year guidance. The company expects to provide a business update at the end of September when it has greater visibility on expected results for the current quarter.

Conference Call/Webcast
The company will host a conference call today at 8:00 a.m. to discuss the financial results for the second quarter of fiscal 2020. A webcast of the conference call is available through the Investor Relations section of the company's website http://www.biglots.com. An archive of the call will be available through the Investor Relations section of the company's website http://www.biglots.com/ after 12:00 p.m. today and will remain available through midnight on Friday, September 11, 2020. A replay of this call will also be available beginning today at 12:00 p.m. through September 11 by dialing 877.660.6853 (Toll Free) or 201.612.7415 (Toll) and entering Replay Conference ID 13707540. All times are Eastern Time.

Headquartered in Columbus, Ohio, Big Lots, Inc. (NYSE: BIG) is a neighborhood discount retailer operating 1,407 stores in 47 states, as well as a best-in-class ecommerce platform with expanded capabilities via BOPIS, curbside pickup, Instacart and, now, PICKUP with same day delivery. The company's product assortment is focused on home essentials: Furniture, Seasonal, Soft Home, Food, Consumables, Hard Home, and Electronics, Toys & Accessories. Big Lots' mission is to help people Live BIG and Save Lots. The company strives to be the BIG difference for a better life by delivering unmatched value to customers through surprise and delight, being a "best place to work" culture for associates, rewarding shareholders with consistent growth and top-tier returns, as well as doing good in local communities. For more information about the company, visit www.biglots.com.

Cautionary Statement Concerning 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," "approximate," "expect," "objective," "goal," "project," "intend," "plan," "believe," "will," "should," "may," "target," "forecast," "guidance," "outlook" and similar expressions generally identify forward-looking statements. Similarly, descriptions of objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements relate to the expectations of management as to future occurrences and trends, including statements expressing optimism or pessimism about future operating results or events and projected sales, earnings, capital expenditures and business strategy. Forward-looking statements are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Forward-looking statements are and will be based upon management's then-current views and assumptions regarding future events and operating performance and are applicable only as of the dates of such statements. Although the company believes the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of knowledge, forward-looking statements, by their nature, involve risks, uncertainties and other factors, any one or a combination of which could materially affect business, financial condition, results of operations or liquidity.

Forward-looking statements that the company makes herein and in other reports and releases are not guarantees of future performance and actual results may differ materially from those discussed in such forward-looking statements as a result of various factors, including, but not limited to, developments related to the COVID-19 coronavirus pandemic,current economic and credit conditions, the cost of goods, the inability to successfully execute strategic initiatives, competitive pressures, economic pressures on customers and the company, the availability of brand name closeout merchandise, trade restrictions, freight costs, the risks discussed in the Risk Factors section of the company's most recent Annual Report on Form 10-K, and other factors discussed from time to time in other filings with the SEC, including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. This release should be read in conjunction with such filings, and you should consider all of these risks, uncertainties and other factors carefully in evaluating forward-looking statements.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. The company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures the company makes on related subjects in public announcements and SEC filings.

Big Lots, Inc. logo. (PRNewsfoto/Big Lots, Inc.)
Big Lots, Inc. logo. (PRNewsfoto/Big Lots, Inc.)

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)












AUGUST 1


AUGUST 3






2020


2019






(Unaudited)


(Unaudited)












ASSETS















Current assets:








Cash and cash equivalents


$898,560


$53,705




Inventories


713,504


874,058




Other current assets


83,956


112,675




Total current assets


1,696,020


1,040,438











Operating lease right-of-use assets


1,663,020


1,208,349











Property and equipment - net


727,091


860,648











Deferred income taxes


16,597


16,077



Other assets


66,762


66,783






$4,169,490


$3,192,295




















LIABILITIES AND SHAREHOLDERS' EQUITY















Current liabilities:








Accounts payable


$379,409


$345,355




Current operating lease liabilities


206,088


239,592




Property, payroll and other taxes


93,829


86,177




Accrued operating expenses


137,428


206,733




Insurance reserves


35,360


37,745




Accrued salaries and wages


44,755


35,192




Income taxes payable


179,821


614




Total current liabilities


1,076,690


951,408











Long-term debt


43,074


467,800











Noncurrent operating lease liabilities


1,472,307


1,021,130



Deferred income taxes


4,639


0



Insurance reserves


56,333


52,122



Unrecognized tax benefits


10,442


13,381



Other liabilities


177,845


41,911











Shareholders' equity


1,328,160


644,543






$4,169,490


$3,192,295



BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)












13 WEEKS ENDED


13 WEEKS ENDED




AUGUST 1, 2020


AUGUST 3, 2019





%



%




(Unaudited)


(Unaudited)

















Net sales


$1,644,197

100.0


$1,252,414

100.0










Gross margin


683,564

41.6


498,230

39.8










Selling and administrative expenses


504,000

30.7


455,026

36.3










Depreciation expense


33,974

2.1


30,023

2.4










Gain on sale of distribution centers


(463,053)

(28.2)


0

0.0









Operating profit


608,643

37.0


13,181

1.1










Interest expense


(2,548)

(0.2)


(4,565)

(0.4)










Other income (expense)


1,357

0.1


(789)

(0.1)









Income before income taxes


607,452

36.9


7,827

0.6










Income tax expense


155,480

9.5


1,649

0.1









Net income


$451,972

27.5


$6,178

0.5

















Earnings per common share
















Basic


$11.52



$0.16











Diluted


$11.29



$0.16


















Weighted average common shares outstanding
















Basic


39,239



39,000











Dilutive effect of share-based awards


801



77











Diluted


40,040



39,077










Cash dividends declared per common share


$0.30



$0.30


BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)












26 WEEKS ENDED


26 WEEKS ENDED




AUGUST 1, 2020


AUGUST 3, 2019





%



%




(Unaudited)


(Unaudited)

















Net sales


$3,083,346

100.0


$2,548,210

100.0










Gross margin


1,254,320

40.7


1,017,277

39.9










Selling and administrative expenses


962,631

31.2


915,631

35.9










Depreciation expense


71,664

2.3


62,820

2.5










Gain on sale of distribution centers


(463,053)

(15.0)


0

0.0









Operating profit


683,078

22.2


38,826

1.5










Interest expense


(5,870)

(0.2)


(8,298)

(0.3)










Other income (expense)


(1,960)

(0.1)


121

0.0









Income before income taxes


675,248

21.9


30,649

1.2










Income tax expense


173,953

5.6


8,931

0.4









Net income


$501,295

16.3


$21,718

0.9

















Earnings per common share
















Basic


$12.79



$0.55











Diluted


$12.66



$0.55


















Weighted average common shares outstanding
















Basic


39,184



39,461











Dilutive effect of share-based awards


419



83











Diluted


39,603



39,544










Cash dividends declared per common share


$0.60



$0.60


BIG LOTS, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)












13 WEEKS ENDED


13 WEEKS ENDED






AUGUST 1, 2020


AUGUST 3, 2019






(Unaudited)


(Unaudited)




Net cash provided by operating activities


$322,263


$100,850












Net cash provided by (used in) investing activities


546,499


(85,965)












Net cash used in financing activities


(282,074)


(24,752)











Increase (decrease) in cash and cash equivalents


586,688


(9,867)




Cash and cash equivalents:








Beginning of period


311,872


63,572




End of period


$898,560


$53,705



BIG LOTS, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)












26 WEEKS ENDED


26 WEEKS ENDED






AUGUST 1, 2020


AUGUST 3, 2019






(Unaudited)


(Unaudited)




Net cash provided by operating activities


$468,384


$158,285












Net cash provided by (used in) investing activities


517,586


(162,731)












Net cash (used in) provided by financing activities


(140,131)


12,117











Increase in cash and cash equivalents


845,839


7,671




Cash and cash equivalents:








Beginning of period


52,721


46,034




End of period


$898,560


$53,705



BIG LOTS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)

The following tables reconcile: gross margin, gross margin rate, selling and administrative expenses, selling and administrative expense rate, gain on sale of distribution centers, gain on sale of distribution centers rate, operating profit, operating profit rate, income tax expense, effective income tax rate, net income, and diluted earnings per share for the second quarter of 2020, the year-to-date 2020, the second quarter of 2019, and the year-to-date 2019 (GAAP financial measures) to adjusted gross margin, adjusted gross margin rate, adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted gain on sale of distribution centers, adjusted gain on sale of distribution centers rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted net income, and adjusted diluted earnings per share (non-GAAP financial measures).

Second quarter of 2020 - Thirteen weeks ended August 1, 2020









As Reported


Adjustment to
exclude gain on
sale of distribution
centers and related
expenses


As Adjusted
(non-GAAP)

Selling and administrative expenses

$ 504,000


$ (3,956)


$ 500,044

Selling and administrative expense rate

30.7%


(0.2%)


30.4%

Gain on sale of distribution centers

(463,053)


463,053


-

Gain on sale of distribution centers rate

(28.2%)


28.2%


-

Operating profit


608,643


(459,097)


149,546

Operating profit rate


37.0%


(27.9%)


9.1%

Income tax expense


155,480


(117,194)


38,286

Effective income tax rate


25.6%


0.2%


25.8%

Net income


451,972


(341,903)


110,069

Diluted earnings per share


$ 11.29


$ (8.54)


$ 2.75

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted gain on sale of distribution centers, adjusted gain on sale of distribution centers rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted net income, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") a gain resulting from the sale of our Columbus, Ohio, Durant, Oklahoma, Montgomery, Alabama, and Tremont, Pennsylvania distribution centers and the related expenses of $459,097 ($341,903, net of tax).

Year-to-date 2020 - Twenty-six weeks ended August 1, 2020









As Reported


Adjustment to
exclude gain on
sale of distribution
centers and related
expenses


As Adjusted
(non-GAAP)

Selling and administrative expenses

$ 962,631


$ (3,956)


$ 958,675

Selling and administrative expense rate

31.2%


(0.1%)


31.1%

Gain on sale of distribution centers

(463,053)


463,053


-

Gain on sale of distribution centers rate

(15.0%)


15.0%


-

Operating profit


683,078


(459,097)


223,981

Operating profit rate


22.2%


(14.9%)


7.3%

Income tax expense


173,953


(117,194)


56,759

Effective income tax rate


25.8%


0.5%


26.3%

Net income


501,295


(341,903)


159,392

Diluted earnings per share


$ 12.66


$ (8.63)


$ 4.02

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted gain on sale of distribution centers, adjusted gain on sale of distribution centers rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted net income, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with GAAP a gain resulting from the sale of our Columbus, Ohio, Durant, Oklahoma, Montgomery, Alabama, and Tremont, Pennsylvania distribution centers and the related expenses of $459,097 ($341,903, net of tax).

Second quarter of 2019 - Thirteen weeks ended August 3, 2019









As Reported


Impact to exclude
transformational
restructuring costs


As Adjusted (non-
GAAP)

Selling and administrative expenses

$ 455,026


$ (19,452)


$ 435,574

Selling and administrative expense rate

36.3%


(1.6%)


34.8%

Operating profit


13,181


19,452


32,633

Operating profit rate


1.1%


1.6%


2.6%

Income tax expense


1,649


4,993


6,642

Effective income tax rate


21.1%


3.2%


24.3%

Net income


6,178


14,459


20,637

Diluted earnings per share


$ 0.16


$ 0.37


$ 0.53

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted net income, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with GAAP the costs associated with a transformational restructuring initiative of $19,452 ($14,459, net of tax).

Year-to-date 2019 - Twenty-six weeks ended August 3, 2019













As Reported


Impact to exclude
department exit
inventory
impairment


Impact to exclude
transformational
restructuring costs


Adjustment to
exclude legal
settlement loss
contingencies


As Adjusted (non-
GAAP)

Gross margin


$ 1,017,277


$ 6,050


$ -


$ -


$ 1,023,327

Gross margin rate


39.9%


0.2%


-


-


40.2%

Selling and administrative expenses

915,631


-


(34,785)


(7,250)


873,596

Selling and administrative expense rate

35.9%


-


(1.4%)


(0.3%)


34.3%

Operating profit


38,826


6,050


34,785


7,250


86,911

Operating profit rate


1.5%


0.2%


1.4%


0.3%


3.4%

Income tax expense


8,931


1,553


8,928


1,696


21,108

Effective income tax rate


29.1%


(0.4%)


(1.2%)


(0.7%)


26.8%

Net income


21,718


4,497


25,857


5,554


57,626

Diluted earnings per share


$ 0.55


$ 0.11


$ 0.65


$ 0.14


$ 1.46

The above adjusted gross margin, adjusted gross margin rate, adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted net income, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with GAAP (1) an inventory impairment amount of $6,050 ($4,497, net of tax) as a result of a merchandise department exit; (2) the costs associated with a transformational restructuring initiative of $34,785 ($25,857, net of tax); and (3) a pretax charge related to estimated legal settlement of employee class actions of $7,250 ($5,554, net of tax).

Our management believes that the disclosure of these non-GAAP financial measures provides useful information to investors because the non-GAAP financial measures present an alternative and more relevant method for measuring our operating performance, excluding special items included in the most directly comparable GAAP financial measures, that management believes is more indicative of our on-going operating results and financial condition. Our management uses these non-GAAP financial measures, along with the most directly comparable GAAP financial measures, in evaluating our operating performance.

Cision
Cision

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SOURCE Big Lots, Inc.