Big Lots Earnings Call Insights: New CEO Plans and Consumer Behavior

Big Lots (NYSE:BIG) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

New CEO Plans

Nathan Rich – Citi Research: David, welcome, and I appreciate the color that you provided at the beginning of the call. Could you maybe talk to us about how you envision your first hundred days at Big Lots and how it all looked like and what you’re looking for?

David Campisi – President and CEO: Absolutely. I actually have somewhat laid out a 100-day plan with the early focus this last three weeks on meeting a lot of our folks in the building here at many critical levels, including VP level and directors. And now that I’m pretty much through that, the next 70 days are going to be heavily focused on the merchandising, marketing, and store operations and visiting the stores with very, what I would call, detailed and somewhat intense business overviews with the merchants and the whole team in place in the stores. And once I understand the business much deeper and understand the issues at hand and the opportunities candidly because that’s what really they are, then I will be coming back to you guys with a very clearly laid out vision of where I think we need to go. My plans are to develop a deeper focus on the merchandising side and along with, quite honestly, what Steve laid out as far as making our stores more exciting.

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Nathan Rich – Citi Research: T.J., could you talk to us about how you feel about the content of inventories right now? Given some of the weakness that you’ve seen in seasonal, how do you feel about the seasonal aspect of inventories as well?

Timothy A. Johnson – SVP, Finance: That’s a good question, Nathan. I guess, clearly, we had some challenges in the first quarter in terms of the velocity of selling on our seasonal product, lawn and garden and summer in particular. And then also, it may not register with everybody that there are others seasonally-sensitive categories in other parts of the business, like Freon and air conditioners, fans, sandals, things like that, that are also impacted when weather’s a challenge. I think I’d answer it this way, Nathan. In warmer weather areas of the country we think we got a pretty good read from the customer that, generally speaking, they liked what we had. So whereas 12 months ago on this call, we would have been talking about some challenges we thought we had in price points and quality. We’re not hearing that from the customer today, which is a good sign. The challenge is, we may not be able to fully recognize all the benefits of the hard work that the merchants put into doing that because of some of the challenges in weather. So, I think, from a content standpoint, I don’t want to pretend that we’ve got 100% of the SKUs right. There are SKUs that we certainly need to address. But as we go into the second quarter, it’s really going to be about kind of who blinks first and are we ready to be promotional and move through the inventory because I can’t imagine that we’re the only retailer out there that’s had impact of weather on their business. So we try to provide for, in our guidance, recognizing where trends are in the month of May and where they were for Memorial Day weekend and also, looking forward, that we would need to be more aggressive on price to make sure that we exit second quarter at appropriate levels and owning it properly.

Consumer Behavior

Meredith Adler – Barclays Capital: I was wondering if you could maybe just talk a little bit more about what you’re seeing with consumer behavior. I don’t know if you can comment on what you’re seeing so far in the second quarter. When the weather gets to be warmer, do you find that people in, say, New York area or Ohio actually do shop? And is there – are people staying away from discretionary or are you seeing that it really is, just when people are in the stores, they are shopping?

Timothy A. Johnson – SVP, Finance: Meredith, it’s T.J. I think for the most part in the first quarter, if you think about Marpril, or the March and April combined to eliminate the Easter shift impact, again, in warmer weather in areas, we saw good response to most of our discretionary areas. Again, in the opening remarks we talked about some concerns that we think will live on in categories like Home but for the most part, if you think about Seasonal in warmer weather areas, it performed pretty well. If you think about Furniture, which is highly discretionary, it performed well pretty much everywhere during the quarter, which was very encouraging for us given the late start we got on that selling season, and also given the fact that when the dust settled, there was actually less income tax refund activity year-over-year in terms of dollars out there to be spent. So I guess to answer your question, it’s a little bit of a mixed bag. We’re seeing good performance in certain of our discretionary categories where we think we’re really right for the customer and weather cooperates. In another areas where we don’t feel as comfortable with our assortment, clearly the customer is validating that for us too.

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Meredith Adler – Barclays Capital: And then maybe talk a little bit about Home, and what you see the issues as being and how you fix them?

David Campisi – President and CEO: Meredith, this is David. I would tell you that I spent a little bit of time in that business a couple weeks ago walking our back-to-school sets, and obviously, it’s all about the content and how you fix it is you get focused on the core parts of your business. And I believe that the soft side of the home, which is where we’ve had some challenges candidly, is better. It still needs to get better, it needs to improve, but we’re making progress. That’s an area that I know very well. It operates very similar to the apparel business and it will be a heavy focus for me over the next 90 days. But short-term, I think we have some things in play that will get it more stabilized, and then longer term, we’ll have a more well thought out strategy…

Meredith Adler – Barclays Capital: Does that mean that you looked at the back-to-school sets and were somewhat disappointed that were building into…?

David Campisi – President and CEO: No, no, no, no, no…

Meredith Adler – Barclays Capital: No!

David Campisi – President and CEO: No, no, I was pleased with what I saw versus what we have in the stores today. My comment is just based on there’s still a lots of upside to improve, but it’s significantly better than what you see in our stores today.

Meredith Adler – Barclays Capital: And I have one final question. Just, expenses were extremely well controlled; the stuff that was controllable was controlled. Anything in particular to point out? You paid bonuses; that was good. Anything else you’re doing to improve efficiency? And what’s the prospects for the next three quarters?

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Timothy A. Johnson – SVP, Finance: Meredith, I think it’s safe to say really expense managements ingrained in the culture, so there are always things that we are doing to try to be more efficient. The first quarter in particular, the stores and distribution center teams to deliver a rate on a negative comp is a pretty heroic effort. There’s a lot of work that went into that, I’m sure. The challenge that we have in really flowing through – more through the expense structure, candidly, is we’ve got to fix the expense base in certain areas; i.e., we’re investing in the business for the long-term, so depreciation is rising. We’re opening new stores, and they’re doing fairly well. But that’s a very fixed expense base that on a negative comp, you’re going to have a very difficult time leveraging. So to your point, the things we can control we feel very comfortable with. It really comes back to kind of pivoting back to getting some volumes moving in the floors to really leverage the work that’s been done.

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