Q2 2020 Big Lots Inc Earnings Call
[music].
Ladies and gentlemen, good morning, and welcome to the Big lots second quarter Conference call I would like to introduce today's first speaker, Vice President Investor Relations Andy right.
Good morning, Thank you for joining us for a second quarter conference call with me here today in Columbus, or Bruce store, and our President and CEO and Jonathan Ramsden Executive Vice President and Chief financial and administrative officer.
Before we get started I'd like to remind you that any forward looking statements. We make on today's call involve risks and uncertainties in are subject to our safe Harbor provisions as stated in our press release and that's the SEC filings and that actual results could differ materially from those described in our forward looking statements.
All commentary today is focused on adjusted non-GAAP results.
For the second quarter fiscal 2020, this excludes a onetime after tax benefit totaling $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.
Reconciliations of GAAP to non-GAAP adjusted results are available in today's press release.
This morning, Bruce will open the call with a few comments Jonathan will review the financials and Bruce will complete our prepared remarks before taking your questions.
I'll now turn the call over to Bruce.
Thank you Andy and good morning, everyone I am delighted with the unprecedented results. We reported this morning and what our team has accomplished in the first half of this year from an operating perspective, the second quarter was record breaking with comparable sales increasing 31.3% the best quarterly comp.
And our company's history, and adjusted EPS of $2.75, which represents the most earnings for us in a second quarter and five times, what we delivered a year ago.
After two excellent quarters I could not be prouder of how we have responded to this crisis with our first priority always being to maintain a safe and healthy environment for everyone.
Our outstanding results have been made possible by exceptional team work 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. We have quickly adapted and found success, while taking care of each other and our customers.
And doing the right thing I want to thank our customers for their tremendous loyalty and our suppliers for the great partnership during these turbulent and unpredictable times.
As we discussed on our last call when the crisis began to unfold nearly six months ago, our leadership team aligned on guiding principles for navigating these uncertain times it started with putting health and safety first ensuring we did the right things to make our stores and workplaces as safe as possible. Our overall objective has.
Venture emerged from this crisis as a stronger and better company and these principles have helped us do that.
Regarding health and safety, we've taken numerous steps guided by outstanding external advisors and incredible efforts of our internal team.
Associates complete a health scream before every shift including a temperature check.
To date over 1.5 million health screens have been conducted we practice social distancing and use face masks and we have added touchless options, including curbside pickup and new same day delivery.
Seniors and those most vulnerable to the virus are encouraged to shop, the first our of everyday and our stores routinely wipe down shopping carts and offer disinfecting at the shopping cart area white down to high touch equipment used at checkout and follow up 24 point cleaning protocols.
As we look forward and assess the changes that have occurred in retail and the competitive landscape. During the pandemic. We believe the strategic work we've done under operation Northstar over the past 18 months has very well position our company for what appears to be a new normal our assortment of everyday essentials and stay at home products is exactly.
What customers want and need in this new way of living and our balanced offering of thoughtfully curated merchandise never outs and close out differentiates us from the competition and surprises and delights our customers with tremendous value.
Our omnichannel initiatives are driving topline growth expanding the convenience of the shopping experience and delivery options, increasing customer engagement and positioning the company for long term success.
In the quarter, we made significant progress on many of our growth strategies, a standout with broyhill, which continues to perform exceptionally well and ahead of expectations. We expect broyhill in its first year to do more than $250 million in sales and believe it has the potential to be a billion dollar brand in the future.
Assortments in outdoor patio furniture, and Gazyva indoor furniture, and soft home have been difficult to keep in stock, which is very encouraging considering we delayed the brand marketing launch that was planned earlier this year due to the pandemic.
Our customers are recognizing the elevated quality and compelling value proposition of this iconic brand and we've recently added some muscle to our organization as we look to expand and update Assortments. This fall and extend broyhill into housewares and kitchen textiles in 2021.
Another standout as the improvement in our omni experience aimed at removing friction expanding our capabilities and growing our customer base. As an example, the recent launch of same day delivery through Instacart and pick up now have produced excellent results in a very short period of time and our payment options online had been.
Span and with the addition of lease online pickup in store. The online version of the easy leasing program offered through progressive as well as a big lots credit card.
It is early for both but the usage rates so far have been very encouraging.
We're now looking further to leverage the store base and future online transactions with ship from store, which will be tested later. This year. In addition, we made excellent progress on this year's rollout of the lot and Q lines to existing store the future locations as well as nearly 240 stores in our legacy or balance of chain format.
We now have approximately 694 stores with the Q and 630 stores with the lot and the early reads from these stores are inline with our expectations. The Q is generating approximately one point of comp and the configuration in the from us to our frees up space for other assortments big buys or Closeouts and other cash.
Degrees.
A lot is lifting the store one to two points and in certain instances, we have an opportunity to test new merchandise categories or assortments. When they are part of the theme presentations.
Apparels a very good example.
Our research from Operation North Star indicated we had a high permission to play in apparel and our success in the lot with graphic Tees and hoodies last summer validated that insight and helped us as we expanded the category. This year, we had similar learnings with novelty small appliances.
With regard to store the future as we look forward, we are increasingly thinking more in terms of an overall store investment program, where we identify the right configuration for each store based on his particular characteristics informed by much steeper analytics that we have had in the past.
For some stores. This may involve moving furniture to the front and center, which has been central to our store the future format. Other stores may get a lighter touch focused on a more basic refresh in the near term we expect to continue prioritizing the rollout of the lot and the Q line given the high returns associated with those initiatives are.
Customers are responding very favorably to these enhancements net promoter scores continue to rise and new customer acquisition as well as active membership in our rewards program are at historic highs and we believe Weve appeal to a new segment of customers with our heroes program offering a special discount to first responders medical professionals.
Active military personnel veterans commercial drivers in teachers.
Moving onto our pantry optimization initiative a chain wide rollout will begin next week and is scheduled to be completed by the end of September. This initiative repositions, our assortment by moving footage from food Staples to food Entertainment and consumables, which will include a 20 foot expansion in both chemicals and health and beauty.
Well combined national brands of everyday low prices and owned brands with big bio alerts and close outs, which differentiate our offering from the competition.
Our customers will be surprised and delighted to find more items on their shopping lists a tremendous values, which will increase the frequency of shopping with us.
Operation Northstar also focuses on funding the journey I streamlining our cost structure. We have continued to make excellent progress on taking cost out of the business and creating a culture of frugality, Jonathan and his team have recently kicked off a companywide initiative that encourages all associates to contribute by suggesting new ways to say we have.
Already had many great ideas from across the company and in our company Town Hall meeting later today, we will be recognizing some of the associates, who have come up with those ideas. Meanwhile, our efforts just structurally reduce our cost base. Our ongoing we expect to significantly exceed our original 100 million dollar reduction target for the foreseeable.
All future, we expect a portion of these savings to be reinvested in coated 19 safety measures.
The third area of focus of operation North Star is on core enablers, where we've made significant inroads with new capabilities and tools in multiple areas of our business, including real estate, our supply chain store engagement in HR.
This includes building out our organization with new talent. Our most recent addition, as Jack Castello, our new Chief Merchandising Officer, Jack joins Big lots after seven years and leadership roles at Wal Mart and with more than 25 years, a global retail experience spanning merchandising sourcing category and brand development.
Jack has a true understanding of value retail and a proven track record and not only sourcing, but also implementing strategies to drive traffic most notably his work with private brands. He has a strong balance the strategic and Executional skills and his leadership style fits very well into our culture.
With this transition, we say goodbye to someone who has been an incredible asset to big lots over many years I want to thank Lisa Bachmann for her dedication service and contributions over an impressive 18 year career on behalf of the entire at Big lots family, we wish lease of the best in the next chapter of her life.
Coming back to the second quarter as we highlighted on our Q1 earnings call Q2 got off to a very good start in may.
This trend there was a continuation of the stimulus driven sales surge that occurred in mid April as customers look to improve their living spaces with indoor and outdoor furniture and home related accessories, and the margin rich categories of furniture seasonal and soft home and while sales trends moderated near the end of May the pace was still robust and continued through June.
With our home related merchandise categories experiencing the highest level demand.
Not surprisingly our inventory levels in lawn and garden summer, which have a longer lead time as compared to other categories and are not replenished during the season.
Where depleted by the end of June and contributed to a slowing of sales in July as did canceling our friends and family event, which was done in the interests of health and safety as it tends to produce large crowds in our stores.
However July sales steel exceeded expectations coming into the month with a healthy comp and we have seen an acceleration of comps from July into August.
Our E Com business also had a record breaking Q2 with our highest level of volume in a quarter since launching the platform in April of 2016 sales continue to accelerate increasing nearly four times over Q2 last year and contributed close to 500 basis points to the overall company comp this quarter, we added more.
Our digital customers than in any prior quarter and at more than three times rate from the second quarter of last year.
We still have a lot of catching up to do in our digital business, but we are thrilled by the acceleration. We are seeing nearly every case in this business continues to trend favorably with notable improvements in site traffic conversion rates average order size penetration of sales and reduce delivery times and once again, we saw improved bottom.
Formats in our direct business.
From a merchandise category perspective, Q2 was an exceptional quarter. Our merchant teams did a tremendous job planning the assortments and we were successful and incorporating close outs from opportunistic buys and a number of departments beyond food and consumables.
All seven categories reported double digit increases in Q2 and with the exception of the inventory constrained seasonal business in July all of them were up each month. In addition, the strength was spread broadly within the categories with nearly every department contributing to the lift.
A few highlights include furniture, which had the largest dollar increase in Q2 comping up in the low 40% range with strength in broyhill upholstery inline sectionals and recliner Sealy mattresses case goods with master bedroom sets, performing very well and ready to assemble home office and storage products, which are in high demand, which.
Stay at home restrictions.
Soft Tom was the next largest dollar contributor with the comp increase of approximately 50% similar to furniture every department and soft home was a big in the quarter with increases ranging from 30 to over 70% broyhill branded assortment and fashion bedding Bath window home decor and rugs, we're very popular and perform.
Above expectations.
Our seasonal business also had a terrific quarter comping up in the low 20% range with tremendous strength in the month of May and very good results in June but.
But as I mentioned, a moment ago are low inventory levels in lawn and garden and summer adversely impacted sales the last month of the quarter.
Electronics toys and accessories posted a comp increase in the low fiftys for Q2 and excellent quarter with all departments contributing apparel, which rolls up into this reporting segment continued to demonstrate promising growth potential.
Art home was up in the mid Thirtys, a great quarter with strength in cookware dinnerware floor care home maintenance and small appliances, all benefiting from the stay at home trend.
Consumables comped up approximately 15% in the corner with positive results across all departments and food was up 10% in the quarter. A very good result, considering the team had to overcome to category reductions as part of early planning for our pantry optimization initiative and the cancellation of friends and family where food over indexes during the.
Event similar to consumables.
Ill now turn the call over to Jonathan for more insight on the financial results in the quarter.
Thanks, Bruce and good morning, everyone would like to add my things for the incredible efforts team over the past quarter.
Net sales for the second quarter were 1.6, full 4 billion, 31.3% increase compared to 1.252 billion a year ago.
The growth resulted from a comparable sales increase of 31.3% and sales growth in new and relocated stores known in the Colm base, partially offset by a lower store count year over year.
Combs were driven by double digit increase in store traffic the close to doubling of E com traffic and strong growth in basket across both channels.
Driven by outsized growth in higher ticket items.
In terms of cadence through the quarter comes in May were up very strongly driven by the stimulus proven surge that Bruce highlighted.
The pace moderated into June and also in July when we did don't run usual friends and family event.
July Nevertheless posted the high single digit Colm, which was above expectations.
In addition, as Bruce referenced we've seen an acceleration of comes from July and August.
Adjusted net income for the quarter was 110.1 million compared to adjusted net income of 20.6 million in Q2 of last year.
Adjusted EPS for the quarter was $2.75, which is at the high end of our guidance range provided on June 26, and includes approximately $10 million of additional bonus expense that was not contemplated when we provided that guidance.
This relates to discretionary stool and DC bonuses, we elected to pay as a result of strong performance in July.
Plus a partial shift to corporate bonus expense from the back over the year into Q2.
As a reminder, we reported adjusted EPS of 53 cents last year.
Gross margin way for Q2 was 41.6% up 180 basis points from last two second quarter rate.
This was well above our expectations and resulted from very strong sell through and seasonal product.
Favorable overall shifting product mix towards higher margin categories and lower markdowns.
Partially offset by higher shrink.
Q3, we expect less gross margin rate benefit from seasonal mix and will also be lapping some tariff rebates from the third quarter of last year.
As a result of these factors current expectation is that a good Q3 gross margin rate will be similar to last year.
Total adjusted expenses for the quarter with 534 million.
Up from $466 million of adjusted expenses reported in second quarter of last year.
The increase included approximately $24 million associated with coded 19 related actions, including extending the temporary increase in the wage rate of two those per hour in store in DC associates through early July in addition to which we continue to enhanced associated discount of 30%.
Discretionary bonuses.
Additional cleaning costs.
Personal protective equipment for associates and other miscellaneous expenses.
We also incurred approximately 6 million of rent expense associated with the sale leaseback transaction that closed during the quarter and accrued additional total bonus expense of 11 million compared to last year.
Even with these impacts excellent overall cost management resulted in adjusted as DNA as a percent of sales of 32.5%.
Representing 470 basis points of improvement compared to last year and tremendous leverage on our underlying expense structure.
We expect some continued coded 19 related incremental expense in the back half of the although at a lower level than in Q on Q2, as a result of which we expect overall as June a dollar growth to moderate in Q3 in Q4 versus Q2.
Our outlook on both gross margin rate and as DNA is of course dependent in part on the sales trends, we see for the balance of the quota.
Interest expense for the quarter was 2.5 million down from 4.6 million in Q2 last year, primarily as result of paying off the balance on our unsecured line of credit during the quarter.
Partially offset by notional interest associated with the sale leaseback transactions.
With regard to the sale leaseback, we originally anticipated the onetime gain recorded in the quarter would be approximately $11 per share.
As we finalize the accounting we determined that it was appropriate to do differ a portion of this gain which will now be amortized and recognized as an offset to rent expense over the term with the leases.
We now expect the annual straight line rent expense to be approximately $46 million.
In addition to which we do we will incur emotional interest expense of approximately $8 million related to the gain deferral.
These effects will be partially offset by lower annual depreciation expense of approximately $8 million.
The adjusted income tax rate in the second quarter, 25.8% compared to last years adjusted rate of 24.3%, which benefited from favorable tax settlements during the quarter.
Moving onto the balance sheet inventory ended the quarter of $714 million, an 18% reduction compared to $874 million last last year.
With the decline, resulting mainly from a very strong sales performance.
We expect the year over year inventory decreased to moderate over the course of include quota.
During Q2, we opened five new stores and closed types tools, leaving us with 1400 and pools tools and total selling square footage of 31.7 million.
For the full year, we now expect us to welcome to be flat to last year.
With approximately 25 store openings and 25 closings.
We have been successfully reducing our closings closings for the proceeds addressing stool and performance before the end of at least to them.
And we have added new capabilities with analytics modeling to assist with future side devaluation.
We expect these actions to support the acceleration in the growth still footprint beginning in 2021.
Capital expenditures with the quarter were 40.5 million compared to 86 million last year in Q2 with the decline primarily coming from few of the fewest over the future conversions.
No investment in Hvdc this year from fewer new store openings.
Oh steel offset by investing in the lot and Q line Rollouts.
Depreciation expense in Q2 was 34 million or approximately 4 million higher than the same period last year.
For the full year, we now expect capital expenditures to be around 150 million.
This is still well below original plan for the reflects an increase from our prior guidance as we have accelerated so new store openings into Q1 2021 with the spend to these openings now occurring in the fourth quarter.
We ended the second quarter with $899 million of cash and cash equivalents and 43 million of long term debt.
This represents well over a 1 billion dollar improvement in liquidity from year ago, and as a result of the combined impact of the gross proceeds from sale leaseback transaction and very strong operating results during the first off Huff of Twentytwenty.
We expect our cash position to moderate during the third quarter as we make our initial textbook payment related to the gain on sale of the distribution centers.
And as inventory returns to more normal levels builds tools the seasonal pre holiday peak.
With regard to shareholder return actions, we announced yesterday that our board of directors approved share repurchase authorization, providing for the repurchase of up to $500 million with our coach is.
This authorization is effective September 1st and as open ended.
Also a board of directors have declared a quarterly cash dividend for the third quarter fiscal 2000 2030 cents per common share.
This dividends payable and since September 20, Fiveth 2020 shareholders of record as of the close of business in September 11th Twentytwenty.
At this point, we're not providing sales repairs guidance for the quarter all full year.
As we gain greater visibility, we expect to resume providing annual guidance in the meantime, as we did in Q2, we expect to provide a business update at the end of September when we will have greater visibility on the outcome to the quota.
I'll now turn the call back over to Bruce.
Thanks, Jonathan as I mentioned in my opening comments, we've repositioned the company and how we operate during this crisis and where emerging as a stronger better enterprise.
We recently completed our annual survey of associates to measure and assess our company and our culture. This team's participation and engagement on the survey was exceptional and well above retail norms.
Engagement scores up and our team is highly supportive of the changes that were made during the pandemic and the strategy of operation North Star.
I truly appreciate the candor and transparency from the team they are honest and direct feedback allows us to improve the company, but the goal of making big lots and employer of choice I'll now turn the call back over to Andy.
Thanks, Bruce operator, we would now like to open the lines for questions.
Thank you will now become got no question answer session, if you'd like to be please.
Q. Please press star one under telephone keypad confirmation total will indicate your line is in the question Q you May press star to if you'd like to your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing star one.
One moment, please what we pull for questions.
First question coming from Peter Keith Piper Sandler Your line is now what.
Hi, good morning, everyone.
I wanted to ask maybe a multipart question around the inventory.
So first off is it the lower inventory, having any negative impact on sales even into August at when might you expect to be back to normal inventory.
And is there an effort to maybe keep the inventories lower going forward than they had been historically.
Hey, good morning, Thanks for the question yet so we do believe that low inventory levels had some impact on sales.
Across the chain during the quarter. They were primarily result of sales is running it continued run very strongly and we were reported a lot more seats in Q2 than we did a year ago, but we just weren't able to fully keep up with the sales trends, which was obviously a pretty high quality problem to have but we do some sales impacted a little higher on the west coast.
New DC, there was still for getting fully up to up to speed. So there were some sales dollars. We if we probably left on table.
Normalization of industry.
It's going to get back to where we want to be full.
Q3, and go forward. However, I think the key point in your question is.
What we've learned from this.
Period is that we can run out business weve.
Which had been a goal.
In any case it prior to the crisis.
I think what we're learning is probably an option to be more aggressive on that so while inventory levels will increase on a year over year basis.
The question is what is normal going forward and can we continue to be turning faster than we have historically and certainly our experience over the last few months suggests that we can.
Okay helpful.
Just also wanted to follow up on.
Your new Chief Merchandising Officer, Jack Bustelo.
Certainly and interesting backgrounds.
Now that he is one month into the job where might you expect him to have the most immediate impact Deb protect at store level that we might be able to observe a similar store checks.
Hey, Peter This is Chris Good morning, Hey, Jack's off take great start first off.
He's got a knows for value coming from that sector and Im just happy with the way is onboard and getting to know his team.
Basically index has one on ones in the stores with his merchants and is on the phone every other day or so with vendors I think that is.
As focuses on adding value products.
It will grow traffic as well as.
Excitement as you recall I've said in the past that we've got too.
We've got multiple customer segments, but in the and it really visit our stores for two main reasons to shopping journey is one everyday essentials and things they need and that might be 50 times a year and then also destination purchases like make over a room et cetera, I think Jack brings a lot of knowledge that both of those especially the first one in terms of adding color and.
[music] products to the traffic driving value Assortments. So early has been onboard for about four or five weeks, but he's made a huge impact on the team. So far we're really excited about what you asked spring.
Okay. Thanks, very much in kicked up a good work.
Thanks, Peter I appreciate it.
Thank you. Our next question today is coming from Joe Feldman from Telsey. Your line is that a lot.
Hi, guys. Thanks for taking the question.
With regard to the flows.
Same store sales through the quarter, it seems like a pretty wide swing.
How much of it was just the lack of inventory in July versus.
The and member last quarter, you guys talked about competitor openings, what would happen and that could have a drag effect you may be stimulus starts to fade a little.
Can you to take us through some of that.
Are you seeing a change in the consumer or what their spending did that happen through the quarter.
Hey, Joe that's at various I'll start off and then hand, it over to Jonathan for more color first off I'm really proud of what the team put together in Q2, we had a very very strong Q2 unprecedented.
And really taking care of our customer Jennifer helping our live big save lots and a very trying time as you know Q2 was driven up by traffic and basket, both in double digits and and I would say just on the color the quarter May and June were obviously double digit comps and.
July was high single digit comps and quite frankly, one of the big detractors from July was our was are Comping up friends and family event and that friends and family that we we did away with because of the obvious reasons with the social distancing in our stores they tend to to bring a lot of traffic in the stores, having said that coming out of July.
And into August.
We continue to see acceleration of our comps into into August and we're really pleased with where where where we're starting the quarter.
Yes, just to add a couple things to that Joe I think yes, some of the a bunch of different dynamics going on comps in the back off of April and May in particular, I think we saw a big impact from the though the federal economic impact payments in the if that initial stimulus that faded a bit but that is out of the beta what we've seen is that our underlying business.
Yes, it, particularly given to the categories in which we operate as it was just doing very well and then on top of that we continue to rollout your own internal initiatives. The surface uploading. The overall comes as a few things going on I think and in July that impact of the friends and family.
No not occurring but as we've said we've seen of acceleration into August and with.
We're very pleased with where we are today, Joe just one more thing on your question just in terms of customer behavior in the pattern of shopping early on obviously with a with a pandemic breaking out and.
Mark and we saw the beginning of the quarter.
Last quarter and then at the beginning of this quarter that definitely stockpiling of essentially food and consumables et cetera. We still saw continued demand in that and we still continue to see demand in that area, where we're doing nice work in that and thats selling area, but but really the behavior has gone to as people can work from home school from home.
Okay.
They are spending a lot more time at home and and that requires them to invest in their homes for the home categories.
The furniture has been very strong for Q2 continues to.
As we entered Q3, so and we think that this might be an enduring trend because when you look at it customers for the most part of some of the research we've done nearly half of them say, even post pandemic, yes, they're probably going to work more from home and two more things from home and so investing in that home is important and we've got the right assortment for that.
Yes. Thanks for that answer here you guys are very well positioned for this.
The other my follow up question just wanted to ask.
The share repurchase announcement that you made.
Hello can you remind us how you guys do do you have like a scheduled way of doing it at visit the stock have to hit a certain price and then you'll buyer that period can you just remind us how to think about you may have the purchases may happen over the next half a year or so.
Yes, it does not much we could really add on that Joe I don't.
Recall exactly what we said have asked about the specifics around execution, but that will be a decision will make sort of quarter by quarter.
Yes, exactly mechanics of it.
On the parameters.
We can go to speak to it in advance.
We will report that as we get to each quarter going forward. So fully I'll give you much more color on that.
Understood. Thanks, Good luck this quarter guys. Thank you.
Sure.
Thank you as a reminder, that star one to be placed in the question Q. Our next question today coming from.
From Goldman Sachs. Your line is allies.
Hi, guys. Thanks for taking my question Great quarter I, just wanted to touch base on your efforts could you talked about gets captured a structurally reduce the cost base the cost structure.
So you see down to basically exceed 100 million right what the next leg up opportunities where can that.
Production sites come from.
Yes.
Good luck trending so a good morning, yet so we think theres opportunity across multiple layers of the business.
In stores were continuing to take action that of bringing cost down overtime.
And supply chain, we have us and initiative that will reduce reduce cost that but really we're looking across all areas of the business.
Essentially we've got two different things going on we've got a top down structural driven objective.
And then we build as part of it up.
Yes culture frugality identification of individual savings opportunities, though that Bruce you talked about earlier in the script and Thats already generating some some great ideas from across the organization store Pcs corporate headquarters and we're really excited about that interest instilling that notion of continuous improvement continuous forgotten.
City, we think is a significant opportunity. So it's really cost across structure, we think theres opportunity, but again, it's a combination of that takedown structural that driven driven approach and that a bottoms up culture frugality.
I'll just add onto with Jonathan Fed Shadley. Thank you for her comments.
At the at the store level, we've done some really neat things last year, but a continuing this year with program called stop thinking safe and how we manage our our markdowns at the cash register so really empowering our frontline heroes out there to make a difference on the bottom line and that's been a tremendous savings this year and will be ongoing savings. We've also.
I've worked with our vendor partners and I think we've got the very best vendor partners out there are strong relationships as house helped us get to a win win in terms of cost management tariff management in the past et cetera, that's a form of ongoing volume growth for both of us and savings along the way I'd like to also say in jonathan's humble on this but he's talked this.
Yeah.
Spare to for Galatea Spartan approach the labor day business, we're going to do a town Hall later today, where we're going to be recognizing.
Folks that have come up with idea savings that Jonathan has instilled in our team. So all this is exciting plus the next phase of our labor management and stores, that's going to allow us to match.
Traffic demand customer demand to our labor schedules and that's going to give us more efficiencies just to give some color on it but this is now new way of life for us and everyone is excited about it and working as a team because this truly funds our growth initiatives.
That's right to do just color. Thank you and if I may follow up.
You talked about you know you I got Instagram Instacart.
That's.
Initiative, and that's going well.
Could you perhaps to some light as to how does that customer differ.
What is that customer shopping how does the basket size differ online so instacart.
Yes, as you know that the customer that's probably looking just Dubai consumer boats.
And your story.
Adding new customers to that initiative.
Yeah, Let me, let me start off by just saying how proud I am of our E. Commerce team led by Eric Fortune. She's just on nice job working on the ecosystem E com growth for US is still a new but we're accelerating and an increase from accelerating into it.
Justin with respect to what we've done with Instacart Instacart. Our shopper. There is somebody that wants same day delivery and the Instacart basket looks like anything you can fit and the trunk of us that Dan and so it's primarily food and consumables and what we've added as well this quarter.
As our pick up now.
Service, which pretty much opens up the rest the store from furniture and anything you want.
And that same day delivery as well and so those two pieces of our E. Com journey, along with focus that we started last year and curbside pickup.
That we started in first quarter. All these things working together has allowed our ecommerce business.
To grow to over $140 million year to date, which is four and a half times last year sales is at 4.6% penetration to overall sales with plenty of room for growth.
And in some just highlights what I'm talking about the Ecomm business, but I love about it and how it opens us up for success is that the traffic is Taylor, we already had great traffic in it but but it's now up to 70% over last year in our conversion rate is three X last year. So these things are moving on the right direction. It sets us up nicely for the future and.
Instacart long with pickup al and potentially some works into calm and delivery from store are all key components and I continue to remove friction from the customer shopping experience and set us up nicely as a value discounter with these added services, a truly differentiates us and that sets us up.
Our growth couple other things big lots credit card is now online and easy leasing, which we'd like to call Opus is online as well.
Okay.
Thank you for the common.
Thank you. Our next question today is probably a from Paul Trussell from Deutsche Bank. Your line is allies.
Good morning, and good quarter.
Thanks playful.
I wanted to ask about the assortment.
Can you talk to us in more detail about the evolution of the a category mix over the last six months.
And also what we may have to mainly what we may have to look forward to.
Over say the next six months.
As it relates to.
Adding skews and square footage.
And where what areas may be losing.
Some skews and square earlier in the call you mentioned.
Initiatives around apparel small appliances, obviously furniture food chemicals, maybe just talk to us about what's happening in each of those areas. Please.
I'll start off here the at Thanks again, Paul for the year Nice comments I'll tell you what we had an unprecedented Q2 I mean basically just reiterating what we said seven categories all double digit comps across the board and then all of them doing well, we sold the heck out a seasonal and first quarter and.
So as we.
As we look towards a future I will take a couple of things that.
What's happened in a couple of things, where we're evolving we realize that theres, an importance and essential that being food and consumables and their traffic drivers so getting the right food assortment as key our focus has been on entertainment food and we are.
As of next month.
Going to start our pantry optimization program, which really highlights.
The entertainment food and less more so than the food staples, so that'll be an evolution.
And that that gives more space for that and also the consumables were seeing tremendous growth in health beauty, we're seeing skin care and back bacteria masks. All those things name brands will be a key component at competitive everyday low prices and our and our of evolution, there and food and consumables is really.
To be competitive on the name brands have owned brands that offer superior value as well as closeouts or what we call Big Beyeler. It's on the same aisle and that's a differentiation to maybe we'll get into big box retailers in grocery store, where you have to go through a coupons are everyday low prices, we could have tend to 40%.
Better prices and I think our customers know that a new customers are finding that out our seasonal business is continuing to evolve as we add brands like broyhill, it's doing well if you havent been out to our stores during seasonal you've got to get out there. We've got the best lawn and garden assortment out there and it's a tremendous value our gazyva sold out I'm. So proud of what the team's done there.
We've got great price points outcomes, and we'll continue to grow in that area as that demand goes and where we're actually going to carry a more longer term season.
When and warmer climates and so on so big hit there, we're seeing a lot activity and toys twice for US was not a great category, but now with the cocooning and so forth toys continues to grow we're seeing really nice growth there are the do it yourself.
Work is it's picking up we're seeing an evolution there we said at end cap.
In Q2 for do it yourself and it basically sold out in four weeks just blew out so theres opportunity for us to grow and do it yourself et cetera soft home.
Continues to grow Broyhill is a big player in soft Tom the new quality, the the great value to price points on on broyhill add to it and and the things that we're doing that are in high demand Jennifer loves. It I think it's a it's an inspirational by four typical Jennifer and it's also a trade down by for higher income Jennifer's.
Coming to our store and then I would also add that hard home, we're seeing we're seeing a and evolution, where where theres more emphasis on on staying at home baking cooking all those types of appliances leaning into that a bit is an opportunity for us over the next six plus months and then finally furniture continues to be.
Okay.
You know a growth area for us and I think we've got a really good thing going with Roy Hill in the sense that.
Some of the things we've added I've just been incredible we brought this brand too.
Big lots.
She is if this first year growth if psychotic its exclusive to us.
We're going to do quarter $1 billion and is and our first year. We do believe it's a 1 billion dollar.
Brand going forward and we've got great products like up like an 11 99 sectional that's selling off the.
Off the charts.
Our new leather $999 Sofa motion recliner, which has a big hits, so somebody great things and finally, I'm, sorry, I'm going long here, but I'm pretty excited about our product assortment, where it's going you can tell on passionate about this is our working closeouts.
We are so happy about this this is back to our DNA roots and.
Just to give you a couple of staff on it that's going to continue to evolve were 36% growth year over year, Closeouts and its outpacing our business growth and we're going to continue this strong performance into Q3 in Q4 across all categories with exception of seasonal for obvious reasons. So.
It's really pleased with where we're going.
I appreciate that color and your passion.
You know one it to also ask about something a passion about in the lot and the Q seems like those initiatives are providing really strong returns.
Help us better understand some of the early learning and how we should think about the rollout cadence from here.
Yeah, No we are going to tell you what it's nice to have these types of initiatives and just say no. This is part of our new in house Evergreen strategic planning process, We've got Andre Who's our new chief strategist working with everyone, but we've got a pipeline of strategic growth, we're already thinking out the 2023, but a lot like Q are just perfect.
Samples the locks now and.
630 stores it will be in roughly 750 stores before holiday half the chain and it's performing.
Just as we expected lifting those stores one to two comp.
And it's only 500 square feet. So you can imagine the returns are fantastic right now we got camping tropical party going on summer on and it's just fun to see Jennifer shop it.
You are seeing we're seeing some learnings like it's one of the things we learned a lot because it's kind of like a innovation lab for us.
What we learned was apparel easy para apparel that doesn't require fitting rooms, and so forth sales like crazy, so the graphic tees and and other novelty items are selling quite well and we're expanding and exploiting that where it makes sense as a key line is in nearly 700 stores right now it's doing exactly what we thought it would do that impulse buy.
And at the end, it's adding appoint a comp.
At least and the good news about this is because that because we've just started this thing up we're not perfect in either one of these and so to get these types of points and meeting or exceeding our expectations early on as a really good sign about where we can take this but the Q line once again saves room upfront.
Makes it a nice enjoyable selling experience.
It's once again lifting one point I guess more room and stores for furniture, Pat or close out a big by alerts right upfront, that's very disruptive for the customer and creates a tremendous shopping experience and there's more to come up or more things that come but I'll keep that powder dry.
And Paul maybe I'll, just add on a year from a capital allocation standpoint, as we look to 21, given the really strong results were seeing in the late in the queue line very strong return on investment getting though we do anticipate that we'll be continuing to roll out of that potentially accelerating it and that goes back a little bit to look at what Bruce talked about earlier in terms.
As of.
Moving to more of a store investment program and.
Moving away from the notion of store the future focusing on what works best in a particular store, where we now have much better insight into that than we had in the past. So there will still be stores were putting furniture front and center will make sense, which was a critical component of the store the future program, others, where it doesn't but either way, we'll be looking to optimize the mix a little.
It was different types of divestment, we can make in the stores as we pivot towards 2021.
Thanks for the color best of luck.
Thank you all.
Thank you. Our next question today is coming from carrying short from Barclays. Your line is allies.
Hi, Good morning. This has actually and we are unable to Tom's onshore Karen thanks for taking my questions.
So just all my first questions about the new customers you've acquired.
Maybe if you can provide some color on the demographics.
The new customers will be heavily compliancy core customer and then also what you've seen with respect to repeat purchases for new customers over the last five months all specifically.
All the great repeat rate for new customers couples to what you've seen historically and if that's any different for the digital customers.
Hey run out of the spurious I'll start off into Jonathan you want to add anything.
You're welcome.
First let me just give you an overview of how I view the customer at this point and what we're seeing our I think one of the earliest signs that that's making is very happy as that Oh.
Oh rewards enrollment is up 60% year over year and our active membership is encroaching on 20 million, which is almost a 9% increase year over year and that's those are great trends, we're seeing the growth in new customers coming from new customers that never shopped us are never bins.
And also reactivated customers customers that are coming back and and finding us again with all the improvements we've made.
And less defection or more stabilization in that our rewards program penetration is is reaching all time high it and nearly 50, 860% which is a good.
Good trend, which of the almost 370% at 370 basis point improvement I think the yet to give you a little more color on the new customers, we're seeing a lot coming from our ecommerce our digital channel, they're coming in here and over the last four quarters, the penetration and new customer growth there has been accelerating quite Frank.
I think it's also a great call out to our marketing team led by a choice.
Joyce and her team they've done a nice job improving the productivity of our marketing our media and the way, we're choosing that to message with new pick your day promotions.
That along gate.
What used to be weekend fig traffic drivers there working quite well enhanced welcome offers our focus on big heros those frontline heroes that.
That are working to to make our lives easier all those things are are adding to the new traffic. So the traffic and just a little bit of buying pattern.
Initially it was you know I think I think this quarter and last quarter, what we've seen in our research is about 24% of consumers are trying new brands and experiences. During this pandemic. So we picked up early on those types of essential buyers in Q1 and into Q2, that's now.
Transitioning to cocooning.
The customers really focused on the home and furniture and and the convenience of the digital channel services that Weve deployed all of that is playing out profoundly right now.
I would just us at one of the data point, we're not the we've seen a significant acceleration in terms of new digital customers took a bit to Q2 2019, we have moved three times the number of new digital customers. So thats a great illustration of the of the acceleration, we're seeing there our efforts to reaching new customers.
Okay, that's very helpful.
Then I just wanted to go back to the conversations on.
Sorry.
Specifically on how you're thinking about planning for the holiday season.
Jim good chunk of room inventory purchases.
Already been made given the lead times.
But I also some you've built on some flexibility into the model given deeds in certain bounce off so so any color on how to think about the holiday sales would be helpful, particularly considering how unique on this year will be thanks.
Yes.
As much to add from what we said earlier, we are anticipating that inventories will rebuild.
Relative to last year.
As we go forward through Q3 in Q4, but we still expect and are planning for a very healthy spread between sales and an inventory growth going forward. You know are not out since you brought up holiday, though I will add that the team.
As really excited about holiday 2020, right now and we know that Jennifer out there can't wait to holiday, it's been a top here and so holiday in general out, we're saying and our social media and she can't wait for Christmas and to common and the early reads on how harvest has been really encouraging.
I'll just say a couple other things about it we think that were more prepared for holiday than ever before we learned a lot from last year, but once again going back to our new E Com model Instacart pick up now and.
And in our assortment, we think it's really well suited and plus we've got surprise and delight products, which I don't want to go into and give up now.
But our monitors really basically to outsell out engage in out execute the competition.
Okay. That's helpful. And then just one more follow me Christine just a follow up on the Closeouts all levels of the team's been pretty nimble with respect to dollars on pumps and political class on but can you speak to any potential changes and the number of opportunities as the economy was opened doubled.
Although the disruption will start to normalize a little bit.
And then also lets now closeouts Indian prominently higher component on the mix going forward. Thanks have were good question. We're really excited about the close thats like I said before I mean this is our DNA is big lots DNA.
We're making really good progress.
Once again, you know the growth in Closeouts is outpacing the overall growth, we're adding closeouts in all categories with et cetera, seasonal because of Santa now and that might even give us an opportunity future amongst come up but to give you a little bit of color on this so you know we have over the last several years really focused.
Closeout business in food and consumables and they at penetrates it 20 or so percent into in those sales and overall box closeouts historically for the last handful years has been less than 10%. We're now seeing closeouts a good quality close out across the.
And tire assortment and and its accelerating Jack to sell you asked about new chief merchant or early there was a question about Jack Jack on the phone probably every other day talking to close out vendors and our close out vendors no that were back in the game and what's what's better than a big lots distributor with 1400, plus stores and E Commerce.
That makes shopping easier we at the top of list again and the muscle. We've had is still there and we think and we've we've added to it from art of the deal selling experience training with our DM ends and just rekindling all the relationship so where we're after I mean I'm looking at a sheet of Closeouts that were that.
We've already sold through and what we're looking at it will accelerate in Q3 in Q4.
We're seeing a and give you a colorado soft home name brands.
Hundreds of thousands of units selling at 52 point and 50% sell through you know actually girls apparel named Bran half a million units 55 points of margin, 50% sell through these are accretive and great ways for us to grow the business and it frankly with Jennifer expect so we're happy.
Got it.
Great. Thanks best of luck.
Thank you. Thank you.
Thank you. Our next question today is coming from Andrew ethanol from Keybanc capital markets. Your line is now live.
Great. Thanks for taking my question and congrats again record performance here.
I wanted to ask or how you're thinking about promotions for threeq here in the back half of the year and what your thoughts are on the holiday season.
From a promotional standpoint.
Yeah I'll start off on this Andrew I don't want to give out our promo calendar [laughter] too early here, but but obviously given the pandemic in situation.
I think in general what we've seen as instead of these big whole house, we can't events, our ability to elongate promotions and allow Jennifer to shop in her terms throughout a period on a longer period of time has served us well and and especially across the right products I think what we've really learned is is not the peanut butter things but.
To make the promotions much more personal and catered around her needs right now. So that's one of the main themes going into Q3 and Q4 from a holiday perspective, we do believe that it will be it will come earlier.
We're seeing signs of that in our in our harvest and Halloween assortment and like I said before social media is lighting up and and we think that.
We think it's a nice combination of promotion picking at.
Allowing her to pick her days plus smoking hot deals on key products that make her life better during this time and all those things are going to come to life with tremendous services.
We didnt have last year, the curbside pickup the instacart the pick up now and more delivery from store as soon to come we'll talk about them next call and all that is going to make for a much better shopping experience and our ability to compete against the pure plays.
Great I understood and then you know as as the industry continues to evolve it fast pace are you seeing any significant changes in the competitive landscape and if so how do you see that backing area that's tied for it.
Yeah, I'll tell you what it's a it's been a roller coaster ride. This year, we I think weve early on we benefited as an essential retailers being one of the few that we're able to stay often with food consumables and things that she needed to to keep their herself and families safe and so we competed quite well with that and in our competing.
Well in the furniture market place the home marketplace and it's because of our assortment is right for now and into services that we provided with with the ease of shopping easy leasing online big less credit card online the delivery services pick up now you can pick.
Opus curbside this furniture and get it you can you could touch it feel it order. It all these things that have allowed us to compete significantly in the home marketplace.
So I think what we're seeing is up.
And this is well beyond the stimulus you know the stimulus checks pretty much 90% of them were done in may and unemployment.
Pretty much stopped as of July and so we continue to grow in this area. So I think the behaviors suiting arse. Our assortments is the behavior of purchasing going forward and we're doing quite well I think it's a combination of theres, probably less discretionary spend and more on a central's in home.
And and home purchases, which is becoming more on nondiscretionary as they live at home and so we're getting a bigger share of her wallet beyond maybe what but we had in the past and then I think are competing better against some of that the competition that doesn't have a strong digital channel or the assortment strength that we do.
Great. Thanks for a detail that's all for me.
Thank you next question today is coming from Liz Suzuki for Bank of America. Your line is that lives.
Great. Thank you I'm I just wanted to follow up on that on a question that was asked previously just yes. You are you seeing any sequential deceleration in particular category now that your competitors and discretionary categories like furniture, our reopening has there been any sequential change from the second quarter into.
Yes, now that you're seeing more if the economy opening and more competitors that are open.
I'll start off later than maybe Jonathan can add to I think really second quarters on our competitors opened up and and I think we competed quite well and post the best comps, we ever had and took share of wallet.
From them.
We are clear winner on it I would say that as we as we go into third quarter any deceleration is as a result of tremendous sell through one example would be lawn and garden seasonal we sold through.
90% of our assortment in Q2 and that typically plays out into Q3, so theres a deceleration nap for obvious reasons and it's a it's a good problem to have.
The other areas have been strong food and consumables is a normal deceleration from the stockpiling importing from Q1, but we continue to perform quite well there in relative terms and they still above what but I would say last year rates significantly. So I think we continue to do it to grow August is off to a very strong start.
As you recall, we mentioned in July and at high single digits, and we're accelerating into August. So I think that gives you the color of how we're doing.
Okay, and I am just as you think about the assortment, particularly in food and consumables as they go into third and fourth quarter. If there isn't a second wave and you'll see people starting to hunker down again at the flexibility till we see a shift from that like entertainment type back into more stable.
Yes, we were always buying a general merchandise in and out product. So we're in the market for anything that Sam I think the one thing we've learned is how to be agile and take a take a pick opportunistic buys right to our customers and they appreciate that so yes, I think for more agile and flexible and capable to exploit.
Opportunities than ever before.
Great. Thank you.
Okay. Thank you everyone. Kevin would you please close the call with replay instructions.
Absolutely, ladies and gentlemen, a replay of this call will be available to you by 12 noon Eastern time. This afternoon August 28, the replay will and then 11 59 PM Eastern time on Friday September 11 2020.
You can access the replay by dialing toll free 18776, 606853 and to replay confirmation number 137, 0754 zero followed by the Palin side.
Total number one to 0161 to seven for one five and to replay confirmation 137, 0754 zero followed by this pilot site, ladies and gentlemen. This concludes today's presentation. Thank you for your participation you may now disconnect.