by Soft retail sales, store closures and Universal shutdown contributed to loss, company says
After posting unaudited financials in early March, Big Lots now has filed its annual report with the SEC. Inside are a few surprises, and we watch Big Lots because as a big home discount chain, the company is something of a bellwether for retail at mass price points and because of its significant footprint in furniture.
First the fundamentals. The chain’s total net sales slipped 13.6% to $4.7 billion compared to $5.5 billion for fiscal 2022, missing by the smallest of margins the consensus estimate but contributing to a yearly net loss of nearly $482 million. The drops came despite a 53rd week for fiscal 2023 that contributed $67 million in sales.
Net sales of furniture, the chain’s largest merchandise category, slipped to $1.2 billion for the fiscal year, down 16% from fiscal 2022’s $1.4 billion. Soft retail sales, store closures and the lingering effects of the sudden shutdown of United Furniture, a major supplier to Big Lots’ Broyhill line, contributed nearly 140 basis points of sales decline year over year.
For the fiscal year ended Feb. 3, SGA costs were reduced by $140 million, or 2.3%, to finish at $510 million, but as a percentage of what were lower net sales, these costs were, of course, higher. The reductions did boost gross margins, however, which reached 38%, compared to 33% for the year prior. Gross profits slipped 2.9% to $544 million, while Big Lots trimmed inventory by approximately $200 million.
For the fiscal year, Big Lots’ operating loss was $387 million, which compares to $262 million for the year prior. The extra week mitigated that operating loss decrease by approximately $6.2 million, according to the company.
The Broyhill re-set
We’ve been watching the chain’s responses to the sudden UFI shutdown in November 2022, seeing newly sourced upholstery for the Broyhill lineup appear on the showroom floor of our local Big Lots in late summer/early fall last year. Big Lots acquired the Broyhill name in 2018, bringing out its first product at retail under the name in late 2019.
Broyhill’s brand-name equity clearly is still central to the Big Lots strategy of “extreme bargain sourcing” and being a destination location for furniture purchases. For fiscal 2023, Broyhill accounted for 8.3% of total sales, which was down significantly from a 12.4% share the year prior. That share is expected to bounce back this year.
According to the company, the decrease was in large part due to UFI, the closure of which “impacted the availability of Broyhill merchandise in our stores in the first half of 2023,” according to the filing. “We fully replenished our availability of Broyhill merchandise during the second half of 2023 by restoring our Broyhill supply chain with new vendors, who we believe are more reliable.”
Right, well, any company would be more reliable than UFI.
Not only did the chain replace UFI, but just prior to filing its annuals, Big Lots announced that it had opened buying offices in Shanghai and Ho Chi Minh City. The move signals the retailer’s commitments to Asian sourcing and to being closer to its supply chain.
“Global sourcing is key to our ability to add newness and expanded assortment at extreme value prices for our shoppers,” Bruce Thorn, president and CEO of Big Lots, said in a statement. “Today’s announcement positions us for even greater success in a changing global marketplace as we create more extreme bargains and everyday great values for our customers.”
In 2023, Big Lots purchased approximately 21% of its goods directly from overseas vendors, including approximately 13% from vendors in China.
Part of an “ongoing turnaround plan,” the buying offices will improve sourcing by bringing “long-time, exclusive third-party agents” in-house, as well as getting the company closer to “closeout deals and extreme bargains,” according to the company. The offices are also being looked to to generate “significant operational cost savings” even during the current year.
Big Lots’ sourcing team is working alongside its merchandising team to “integrate new procurement channels and to directly source deals without intermediaries,” Thorn said during an earnings call. The offices are also a move to further expand the company’s sourcing network into Central and South America, as well as into Africa.
Furniture categories that Big Lots carries include upholstery, mattresses, case goods and ready-to-assemble.
Supply chain control is clearly essential to the Big Lots strategy of “buy today, take home today,” a position that requires in-stock inventory of whatever is on the floor. This immediacy “positively differentiates us from our competition,” as the annual report put it.
Tough sledding in 2024
While not surprisingly optimistic about making progress in all of the fundamentals, especially SGA and same-store sales, Big Lots acknowledged the swirling uncertainty facing all of the big retail chains and most retailers in furniture, as well: Uncertainty because of the elections, interest rate fluctuations, the continuing war in Ukraine and geopolitical instability because of the Middle East, and supply chain disruptions.
Despite these challenges, Big Lots states in its filing that it “expects to continue witnessing quarterly year-over-year gross margin enhancements” and “anticipates a pathway toward achieving positive comparable sales as the year unfolds.”
Five “key actions” will drive the improvements: Owning bargains, communicating unique value, enhancing store relevance, strengthening customer relationships through omnichannel initiatives, and driving productivity.
“There’s a lot of work to do in 2024, and we are moving aggressively to accelerate our transformation, return to positive comparable sales, and continue to improve our gross margin rate over the course of the year,” Thorn said.
Geaux Tigers
It’s also interesting that Big Lots announced no plans to fill the chief merchandising role after the recent departure of Margarita Giannantonio. Senior vice presidents Kevin Kuehl and Shelly Trosclair will absorb those duties, reporting to Thorn. The buying offices report to Kuehl, while Trosclair is responsible for furniture, décor and seasonal.
Trosclair was recently promoted to senior vice president and general merchandise manager after joining the company in January 2023. Prior to joining Big Lots, Trosclair, who judging by her LinkedIn is a big LSU fan, spent four years at Tuesday Morning, most recently as senior vice president and GMM. Prior to Tuesday Morning, she held several positions in merchandising at Ollie’s Bargain Outlet and Burlington Stores.
Finally, we always look at store counts as a rather crude metric of growth and expansion. For Big Lots, that expansion has turned into retrenchment. After opening 56 stores in fiscal 2022, the chain added just 15 last year, while closing 48 locations. That’s a net drop of 33 stores, which came on the heels of a net reduction of six locations in 2022. At 1,392 locations, Big Lots is in all 48 continental states, with nearly a third of those stores in four states: California, Texas, Florida and Ohio.
“Our overall average selling square footage has increased since 2019,” the filing stated, a result of many of the shuttered locations having been under the average footprint of its stores of 33,500 square feet. “In 2024, we expect to open approximately three new stores.” Beyond this year, the company says it expects to “return to growth in our net new store count, particularly within rural and small-town markets.”
The company’s real estate team has identified more than 500 markets across the U.S. where Big Lots believes it can successfully open stores, the filing stated. The company estimates the cost of opening a new location at exactly $1 million.
