Big Lots Earnings Call Insights: Consumables, Closeout

On Wednesday, Big Lots, Inc. (NYSE:BIG) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.

Consumables

Laura Champine – Canaccord Genuity: My question, Steve, is about the guidance for the same-store sales trends to improve in the back half when you do have difficult comparisons, and I’m just wondering, and I hear you saying that consumables you expect to show some improvement, but how are you getting visibility into what closeouts you’ll buy in consumable? Can you just give us more color on what the changes in the buying strategy there that should drive that comp improvement in the back half?

A Closer Look: Big Lots Earnings Cheat Sheet>>

Steven S. Fishman – Chairman, CEO and President: I think there is a couple of things that we’ve been working on that actually were good for us in the third and fourth quarter of last year, particularly and continue to be good. The basic Never Out programs that we’ve developed over the last 12 months Fresh Finds in particular in International Foods have really performed well and continue to grow as a percent to our total business and we have some of pretty exciting plans for the second and into the third quarter, particularly with expanding Fresh lines and in international event that we did not have, so that’s number one. Number two, we actually have, although we don’t like to talk about it, a little bit more visibility for the balance of the second quarter into the third quarter of closeout availability and we’re pretty pleased with what we believe will be coming in. I think you’ll see changes, actually you’ll probably start to see some of the inventory in the stores in the next two weeks and will continue flowing through June, a pretty substantial closeout opportunity that we’ve taken advantage of. So we feel particularly good about that. Then I think we preplanned back-to-school period really, really well. I think you’ll start to see a transitional set in July there. I think Doug and team have done a job that we’ve really never done before, so I’m pretty excited about that. He also has a plan to transition after back-to-school for the balance of the third quarter, again another program that we’ve never done before that’s extremely similar to what we’ve done and we’ve always talked about, which is the nine weeks of Christmas before. So we kind of have nine weeks of Christmas plan for back-to-school through the third quarter and is actually expanded and extended the nine weeks of Christmas for the fourth quarter to 14 week period, so that we can transition well, not only during Christmas, but out of Christmas in the January this year. So I think, we really have our arms around the business, probably more substantially than we’ve had in a long time.

Closeout

Matthew Boss – JPMorgan: With 70% to 80% of the consumables category more closeout nature, are you seeing any signs of opportunity for an increased level of direct from manufacturer goods over time in this category and is it something that you’d be interested in and just in terms of stabilizing the consistency and the category?

Steven S. Fishman – Chairman, CEO and President: Matt, that’s the question of the hour that we’ve asked ourselves a 100 times and I think it’s a really good one. I think we have always said that we’ve challenged ourselves about what’s the right amount of closeout business today day-in and day-out or in and out business and I think going through this process of the next three-year long-range plan, we’re going to challenge ourselves there. We talked forever about the fact that the largest piece of the closeout business is consumables, which is the largest piece of our overall business and we’ve built a very large business over the last five years, particularly with that level of success. You know and as we do, when it’s good it’s really good and when it’s not, it’s not. I think the relationship building that Doug has really initiated with his team and with some of the major manufacturers, the best manufacturers in the country that we probably didn’t have as closer relationship within the past few years is only going continue to grow. He is not only structuring the business or restructuring at around giving him some more talent in those businesses, but also infusing some relationship people that we’ve really never had before to continue to grow those things. The answer to your question is, is there are some opportunities for day-in and day-out business from some of these manufacturers to just manufacture goods for us? The answer is yes to that too.

Matthew Boss – JPMorgan: That’s great. The second question I had is, given some of the changes that you outlined in the category and it sounds like more backend weighed in terms of the second quarter in the second half. Have you seen any signs of stabilization in consumables and electronic in May thus far?

Timothy A. Johnson – SVP, Finance: Matt, this is TJ. I guess from our guidance perspective, what we’re communicating here is that this is kind of a flow issue or flow process through the second quarter as some of the opportunities surfaced in the deep dive start to come in to store. That will happen gradually through the quarter. So, it’s a little premature for us to sit here three weeks into the quarter and talk about trends changing when really those deep dives with the merchants really just finished in the latter part of April. So, I think from a guidance perspective, I would remind people that we do have an extra add here in the month of May. So, we would have an expectation that May would be a little bit better than the balance quarter, that’s why (we’ve been) advertising there, but it’s a little premature for us to comment on current trends coming out of those deep dives which is just finished in the latter part of April.