Q3 2020 Big Lots Inc Earnings Call
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Ladies and gentlemen, good morning and.
Welcome to the big lots of third quarter Conference call. At this time all participants are in listen only mode of question answer session will follow the formal presentation.
If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder of this conference is being recorded on the call today are Bruce Cohen, President and CEO and Jonathan Ramsden.
Executive Vice President Chief financial and administrative officer.
Before starting today's call the company would like to remind you that any forward looking statements made on the call involve risks and uncertainties and are subject to the company's safe Harbor provisions as stated in the Companys press release, it at SEC filings and the actual results can differ materially from those described on forward looking statements. The company would also like to point out that.
Our commentary today is focused on adjusted non-GAAP results reconciliations of GAAP to non-GAAP adjusted results are available in today's press release.
Ill now hand, the call over to Bruce Cohen, President and CEO of Big lots of Mr. Ford. Please go ahead.
Thank you and good morning, everyone I am thrilled with the strong results. We reported this morning, and what our team has accomplished thus far this year. This.
This was another record breaking quarter with comparable sales, increasing 17.8% and EPS of 76 cents, representing our highest ever third quarter adjusted earnings far exceeding last year's comparable figure.
Our consistently outstanding results throughout the kind of the crisis, our tribute to the exceptional and unwavering teamwork across the entire organization.
Once again I want to thank our associates in our stores the distribution centers and our corporate headquarters for their dedication and tireless efforts.
As many of you probably know we.
We made the decision this year to close our stores at one PM on Thanksgiving day to make certain our associates had as much time with family as possible in this atypical year on our stores are typically open throughout Thanksgiving, we were happy to provide our teams with the opportunity to be with their families on also offering our customers a desirable window.
To shop for last minute needs.
The guiding principles, we have used to navigate what remain uncertain times include the key priority of making our stores and workplaces as safe as possible. We remain steadfast in that objective as we once again see cobot cases rapidly increasing.
Along with clear and rigorous safety standards, social distancing and cleaning protocols in all of our stores and workplaces, our investment in new E Com and omni channel capabilities, such as curbside pickup in same day delivery are a critical part of these efforts.
Over the past quarter, we have seen continued momentum from the cobot induced nesting trend of the strength of our business also reflects the strategies that were already rolling out under operation Northstar.
These include our broyhill launch the introduction of cross 750 stores of the lot and Q line initiatives and our pantry optimization reset all of these initiatives have been successful and along with our growing E com capabilities and expanding customer file position us for continued strong progress going forward.
As I mentioned in our last call and the current way of living our assortment of everyday essentials and stay at home products continues to strongly aligned with customers wants and needs.
We feel very good about our balanced offerings spanning thoughtfully curated merchandise never outs and closeouts.
Our customer continues to look for every day values as well as surprises throughout the big lots store.
Our evolving never out program ensures that our customers have affordable access to everyday needs and our expanding focus on closeouts resonates well with her.
She loves the treasure Hunt and finding amazing deals at different every time she visits.
Additionally, broyhill and our portfolio of private brands will help us deliver quality on price, while building loyalty and differentiating ourselves on the market.
We are confident that we are well positioned to gain market share from both existing customers and those who are new to the big lots family.
On top of all of that during this year's unique holiday selling season, we have positioned our assortment of promotional cadence to capture early holiday shopping.
So let me give you an update on where we stand today and frame for you how we planned the business for the balance of the quarter as we look to manage the key selling weeks, leading up to end, including Christmas.
Our strategic decision to planned for early holiday shopping has paid off as our quarter to day comps are up low double digits with strong sell through in seasonal merchandise.
Given a pull forward in sales and our long gated holiday shopping season, we have planned for the business to moderate for the balance of the quarter.
Overall, our strategies reflect the fact that now more than ever customers are demanding expanded ways to shop, how and when and where they want.
We continue to accelerate our omni channel capabilities, removing purchase friction and creating better customer experiences.
As you know this year, we introduced curbside pickup as well as same day delivery and partnership with Instacart in July we launched same day delivery from big lots Dot com with pickup our same day delivery partner, allowing customers to order any item available at their local big lots store of be at big lots stock comp delivering small.
And large items from decorative accessories in snacks to finnerty share and mattresses all within the same day, our instacart end pickup delivery services accelerated over the quarter, making a significant contribution to our overall E commerce driven growth and finally, we have now rolled out ship from store capability.
These to 47 initial stores strategically identified to ensure two day delivery to 90% of our customers across the country.
For a cohesive experience online and in store, we have integrated web end store capabilities to allow for seamless returns price and consistency and order visibility I'm also proud to highlight that we are named number one and total retail 2020 top omnichannel retailers report.
This achievement is validation of how quickly we have adapted our approach to meet our customers evolving needs.
We still have a long way to go on our omni channel journey, but I am delighted with the progress we have made and the accelerated rollout we have achieved over the past nine months.
In total E com and omni channel demand grew 70% over Q3 last year contributing close to 170 basis points to the overall company comp driven by an expanded SKU offering convenient delivery options and new digital customer acquisition.
Nearly every case in this business continues to trend favorably with notable improvements in site traffic conversion rates penetration of sales and delivery times.
Let me now spend a few moments on the excellent trajectory, we are seeing and broyhill as I mentioned on our last call. We added talent to the organization and have begun to expand and update our broyhill fall and holiday Assortments to include products like area rugs, Bedsheets and decorative pillows.
The customer reaction to the entire offering of this iconic brand remains very favorable and we remain very excited about our 2021 extension of broyhill into housewares and kitchen textiles.
From a hills now on track to generate close to $400 million.
In first year sales and we continue to firmly believe it can be a billion dollar brand for big lots over time.
He'll customer spend twice as much as non broyhill customers and 10 times as much as non furniture customers. This dynamic is driven both by basket size and visit frequency.
One third of Broyhill customers are new to big lots and 50% of Royal customers have already returned to make a second purchase either in stores or through big lots Dot com.
We also continue to make excellent progress on this year's rollout of the lot in Q line.
We have rolled these strategies out to approximately 750 stores, which are performing well and in line with expectations.
The lot lifts stores, one to two comp points and also provides a great way for us to test new merchandise categories anchored theme presentations, such as outdoor sporting goods novelty kitchen appliances and apparel, we continue to see strength in apparel in the lot, but also in small appliances at Interoil is the Q low.
On drives approximately one point of comp and the configuration in the from US store frees up space for other assortments, including quality Closeouts.
As I noted on our last call in the near term, we will continue prioritizing the roll off of the lot and the queue line given the high returns associated with these initiatives and expect to at another 450 stores by the end of Q1 2021.
Pantry optimization launched this past quarter and the rollout was complete at the end of September as a reminder of this involves repositioning footage from food staples to food entertainment and consumables, including cleaning products and health and beauty.
We are combining competitively price national brands with an expanded assortment of Closeouts, all of which creates a significant value differentiation from the competition.
Our customers are surprised on delighted to find more items on their shopping list at tremendous values, which will increase or frequency of visiting going forward.
Our earliest reads from pantry optimization are indicating that we are getting lifts in our consumables business as well as the food categories, where we expanded space for entertainment foods and coffee. This is partially offset by our exiting or reducing of less productive categories, such as freezer cooler and cans in Pos.
Into more to come as this strategy continues to mature coming.
Coming back to the third quarter as we commented in prior updates we started the quarter strongly.
This strength continue despite the ending of the stimulus driven sales surge from mid April through mid summer as customers continued to improve their living spaces with indoor and outdoor furniture and home related accessories.
Additionally, as focus turned to seasonal shopping for Halloween harvest and then for early Christmas selling we saw continued strength in October as I mentioned the momentum has continued into Q4.
Turning to our category performance, our merchant teams did an outstanding job planning the Assortments for Q3 with all seven divisions reporting increases in the quarter from.
Furniture sales increased 25% versus last year with all departments driving double digit comp growth.
Upholstery and home office were both up 30% with ready to assemble mattresses and case goods all up around 20% to last year the.
The Broyhill brand had a strong impact on furniture, representing 17% of total furniture sales in the quarter upholstery was particularly strong for broyhill driving 30% of total of apartment sales matched.
Mattresses grew 18% and although our suppliers continued to face challenges associated with raw material shortages at big lots team moved quickly to supplement supply by adding new skews and new vendors.
Soft home had double digit comp increases led by strong trends within the window basic bedding.
And at core categories.
Window was up over 45% with curtains up over 50% driven by incremental broyhill and national brand offerings.
Of course saw double digit growth driven by Broyhill Christmas and art comfort.
Comparator sets were up over 20% on strength of broyhill and opportunity buys pillars of pads were up 33% and 34% respectively.
Our seasonal business also had a terrific quarter of fueled by early selling at our Christmas assortment.
Driving of 42% comp increase over prior year end contributing significantly to our overall comp.
Our harvest and Halloween Assortments contributed additional growth over last year, partially offset by summer and Patti Assortments due to high sell through in these categories in the second quarter.
Electronics toys and accessories posted a comp increase in the mid Fiftys for Q3, driven by 94% increase in our toward business. Thanks to good momentum through the quarter as well as our 50% off toy promotion near the end of the quarter.
Our at home comps were up 20% to last year with all departments trending positively.
Key areas, such as kitchen appliances, cookware, Bakeware, dinnerware and Drinkware drove top line by over 40% on a comparable stores basis in part due to the cook and dining at home Trent.
Consumables comped up from approximately 10% in the quarter with positive results across all departments, except paper, where we were faced with inventory challenges early in the quarter due.
Food was up 1% in the quarter of very good result, considering the team have to transition a good part of the assortment for our pantry optimization initiative and the lack of of friends and family event as compared to last year, where food and consumables both over index during the event.
Across all categories close out sales of third quarter were up around 50% over the same quarter end 2019, Closeouts are an important part of our heritage and a significant reason why she shops us we're planning for continued strong growth going forward.
Our active rewards membership reach and historic high with 8% growth over Q3, 2019 and rewards customers in total spent 28% more versus last year the.
The big hear US program resonated with our customers as members of the military and veterans first responders medical professionals commercial driver's end teachers spend significantly more per customer than others. Starting last month, we have rolled out an ongoing discount to act of military and veterans and greatly value our ability to support these heroes and of Pracht.
Go away every day.
Meanwhile, we continue to delight our customers as reflected in high end, increasing net promoter scores and we continued to accelerate our acquisition of new customers I will now turn the call over to Jonathan for more insight on our financial results for the quarter.
Thanks, Bruce and good morning, everyone I would like to add my thanks for the incredible efforts of our team over the past quarter.
He has truly been remarkable to see how the teams niche of because of the so tightly through these challenging times and how of values of remained at one of the center of everything we do.
Net sales of the third quarter were $1.378 billion, an 18% increase compared to 1.168 billion a year ago.
The growth resulted from a comparable sales increase of 17.8% on sales growth in new and relocated stores Milton income base.
Comes from driven by a slight increase in store traffic eco on traffic up over 50%.
On strong growth in basket across both channels.
In terms of cadence through the quarter the underlying trend of by month was fairly consistent after adjusting for the effects of changes in promotional cadence and intensity.
The seasonal pattern of Combs was different however, with strong Halloween and harvest selling in August and September on.
Strong early Christmas selling beginning in mid September on running through October.
Net income for the third quarter was $29.9 million compared to an adjusted net loss of $7 million in Q3 of Twentys 19.
EPS for the quarter was 76 cents six cents above the high end of our guidance range provided at the end of September.
As a reminder, we reported on an adjusted EPS loss of 18 cents last last year.
The gross margin rate for Q3 was 40.5% of around 80 basis points from last year's third quarter rate.
This was better than we anticipated at the beginning of the quarter on reflected the low a markdown rate and an overall mix benefit offset by higher freight costs lapping some tariff rebates from the third quarter of last year, and a slight impact from our country optimization strategy.
For Q4, we expect gross margin rate to be approximately flat to last year due to a low year over year markdown benefit offset by high of freight costs on the somewhat greater impact from pantry optimization.
Total expense dollars for the quarter, including depreciation were $515 million of from $468 million of adjusted expenses last year.
Key drivers of the increase with 12 noon million dollars of additional expense from the sale lease back of our distribution centres 10.
$10 million of additional store on coke of bonus expense $8 million of higher non cash stock compensation expense.
As well as ongoing coated related cleaning colson supplies on some overall expense flicks on higher sales.
These drivers will largely continue into Q4 and result in similar dollar expense growth to Q3.
Notwithstanding these increases expenses from the third quarter level at approximately 270 basis points versus last year, resulting in excellent flow through of sales growth to operating income.
As we referenced during our last call we remain focused on continuing to gain cost efficiency in our business.
Both through an ongoing data driven on the ROI focused approach to expenses on through continuing to grow a culture of full full frugality.
We continued to make strong progress on cost reduction on those efforts will continue into 2021 on beyond.
With key areas of focus being labor costs supply chain marketing expenditures general office expense and non merchandise procurement.
Interest expense of the quarter was $2.6 million down from $5.4 million in Q3 last year.
Primarily as a result of paying off the balance on our unsecured line of credit in the prior quarter.
Partially offset by notional interest associated with the gain deferral on us sale leaseback transactions.
The income tax rate in the third quarter of 24.1% compared to last year's adjusted rate of 31.7% both impacted by the resolution of discrete items.
Price of discrete items. This is income tax rate was 26.4% compared to last year's adjusted rate of 26.1%.
Moving on to the balance sheet inventory ended the quarter of $1.089 billion of 2.5% reduction compared to $1.17 billion last year.
With the decline, resulting mainly from our very strong sales performance.
Total inventory included a significant increase in in transit inventory as we chase sales of work to get back in stock for the holiday selling season.
Inventory on hand at our stores with Daimler of mid teen percentage at the end of Q3.
Including in transit, our Q4 inventory is likely to be closer to flat given some acceleration in Q1 receipts in early Q1 receipts due to the Chinese new year.
During Q3, we opened 13, new stores and closed six tools leave us with 1400, 11 stores and total selling square footage of 32.1 million.
For the full year, we now expect our ending store count to be 1408 stores with 24 store openings and 20 closings.
We have been successful in reducing our closings with a process of dressing store underperformance before the end of at lease term on.
We have added new capabilities with analytics and modeling to assist with future site evaluation.
We expect these actions to support to support a marked acceleration in the growth of us store footprint, beginning in 2021, including our highest number of Q on Q on openings in many years.
Capital expenditures for the quarter were $34 million compared to $69 million last year.
With the decline primarily coming from fewer store of the future conversions on fewer new store openings.
Actually offset by investing in the low end Q line Rollouts.
At today, Kathleen Capex is $103 million versus $232 million last year.
Depreciation expense in Q3 was $33 million approximately 1.6, moving those lower than the same period last year.
For the full year, we expect capital expenditures to be between 150 on $160 million.
We ended the third quarter with $548 million of cash and cash equivalents of $39 million of long term debt.
This compares to $62 million of cash and cash cash equivalents on $501 million of long term debt of the end of the third quarter last year.
Regarding shareholder return actions, we repurchased 2.2 million shares during the quarter for $100 million at an average cost per share of $45 at an 81 cents under our previously announced 500 million dollar share repurchase authorization.
Also our board of directors declared a quarterly cash dividend for the third quarter. The fiscal 2020 of 30 cents per.
Per common share this.
This dividend is payable on December 32020 to share holders of record on the close of business on December 16th 2020.
Share repurchases remain an important part of our capital allocation strategy going forward in particular, given us significant excess liquidity.
At this point, we are not providing sales on EPS guidance for the fourth quarter on full year.
However, as we did in Q2 and Q3, we expect provide of business update in early January when we will have greater visibility into the outcome for the quarter of.
As Bruce Bruce referenced a fourth quarter is on track and we look forward to closing out of solid year.
Ill now turn the call back over to our moderator. So that we can begin to address your questions. Thank you.
Thank you, we'll now be conducting a question and answer session. If you like the play from the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to look at questions from the queue from participants using speaker equipment may be necessary to pick up your handset before pressing.
Store one.
Some of it please while we poll for questions.
Our first question Safeway of from Greg Badishkanian from Wolfe Research Your line is alive.
Good morning, this expense or had us on for Greg you mentioned at your comps were up low double digits quarter to date could you talk about any categories that are outperforming or underperforming that trend and then are you seeing any signs at of shoppers stocking up just given the writing code of cases around the country.
Hi, Spencer this is Bruce I'll start off and Jonathan can add to it and also thank you for the recent wolf coverage.
Just speaking about Q3 merge and what we're saying I'd say across the board as we mentioned in the.
Our opening remarks were really pleased with all divisions positive positively comping.
I think some of the standout areas are soft home up.
Over 20% I really driven like you heard from the window bedding and so forth. We've got we've got a lot of closeouts in that area too we've got our apparel in that section and that said, that's actually resonating well with the customer on top of at our furniture Division did quite well strong broyhill performance at once.
Again over 20% comp in that area as well as out of the upholstery overall upholstery and mattresses mattress sales part of on continue to do quite well there.
The next thing that Cocooning, if you will is alive and well with Jennifer kitchen appliances.
Cookware dinnerware all of those areas doing quite well and also closeouts and deposits on air prior type of products.
US all worked very well overall of the value is big at this time of year and with the kind of issues that are going on here Closeouts were up nearly 50% Q3 year over year, but we're really proud of all of the performance across all the divisions, especially when you think about we did a panther optimization transition and food still comped up while GAAP.
Moving up space and end Comping of friends and family of last year, and consumables did quite well with our emphasis on health and beauty and Pat So we're actually very pleased with.
What we are saying we are seeing with Cove at night team at starting to peak again that there.
Theres a buyout end the paper and cleaning products at and that's that's that's something that's been going on here, but we're still seeing strong.
Strong purchases to improve the the.
Workplace at home and living conditions at all.
Yeah, I would just as percentage of just a couple of might of data points or couple of data points, you were up across all categories quarter to date in Q4.
We did see at but we have seen a bit of a spike in consumables.
Referencing that sort of stuck up.
On what's going on and then seasonal we've done well early we and we also did well on seasonal Christmas in particular in October. We go some early business. There that continued through November so that has been relatively strong we sold through.
Certainly a significant high proportion of at Christmas inventory at this point that we had a year ago.
That's really helpful. And then it was nice to see the sequential improvement in your inventory. This quarter can you talk about how well positioned you think you are for the holiday season from that standpoint, and then in terms of the sell through that you have on your on your items and in Q4 are you happy with where you are today.
Just given debt to changes in the timing of holiday sales. Thanks, Yeah. So I'd say overall, we are you know with the quarters play out so far as we planned at work here, we thought we would start.
Start of strong we feel that would be of pull forward of business to pre Thanksgiving early early shopping again for Christmas and so on and we are seeing both of those things play out. So we plan of the business to moderate from November interest into December. So, we're very comfortable with where we are at all that.
Yes, Chris was inventory is pretty sold through frankly, we had a little bit more of that we would be happy, but we were fine with how we plan on that at overall, we're happy with where we're tracking on inventory. We do expect the on hand inventory levels in stores to aggressively get at a through the end of the quarter end to be at at a more normalized levels.
Certainly we have given up a little bit of sales volume from the very low on end in inventory levels, what we've been running.
Great. Thank you.
Thank you at next question today is coming from Joe Feldman from Telsey Advisory Group. Your line is now live.
Hey, guys. Thanks for taking the questions on one end to end congratulation on the quarter actually.
You mentioned, two new customers and you're doing a good job of retaining them I was just curious.
If you could share a little bit more about the new customer of what you're seeing how they may be different from existing customers end and talk a little more about how you are retaining them and getting them to come back.
Hey, Joe. Thank you I'll take it at first and then Jonathan can add on we're seeing that at as the cause of the trend continues at Theres new types of customers.
She is focused on on value of shopping home shopping at home furnishing, making the home life, a better one of the work life at home better and definitely ecommerce, making it easier.
We're seeing strong E commerce shoppers coming is from of our customer acquisitions from our strongest customer acquisitions coming from online. We're also seeing a lot of customers coming in because they've heard that weve got broyhill and Roy Hills and iconic brand at she she loves and and Thats of new source of customer for us on that customers coming back.
Half the time very quickly and purchasing other things across the store we are seeing that our membership in our rewards. This quarter was up in Q3 was up over 8% and that we are encroaching on 21 million customers on our rewards database, but quite frankly, what I think what we've got here as a as of.
Customer that is looking for value is looking for an easy shopping experience convenience in the end and friendliness at during a time that is very difficult. So what we're doing to keep her is is having more promotions that.
Reward her like $10 off on us $40 purchase of bounce back we've we've heard loud and clear on on first responders of 15% off we getting at Q3 was a huge success.
10% off military veterans are all the time at something else that is thats at bringing those customers back over and over again at we've increased our social media engagement with them and our impressions Q3 year over year I went from somewhere like at quarter of a million of precious over 9 million through social influencers. So on.
All of these things, reaching on a more personal level through E mail and the things at she enjoys on of products that she needs.
As boding well for us.
That's great. Thanks, if I could follow up and some of what you just said might answer. This next question but.
I know, it's a little early but as you think about next year and having a laugh a lot of the strength that you've seen.
It would seem to me that you have a lot of at good initiatives in place to help sustain some level of sales and.
How should we think.
Think about the puts and takes for next year with regard to to sales. It seems like there's an underlying core base of business that you should be able to maintain and just there are we thinking about at the right Larry Thanks.
Joe the way I think about it and I think this share.
While it was very difficult for all of US at go through drove a 19 still going through this.
Terrible pandemic, but we picked up a lot of new jennifer's and they discovered at big lots maybe for the first time in 2020 of like I said, we were on our way to 21 million rewards customers I think a few things share value never goes out of style and with our increased focus on closeouts and our penetration of owned brands and on assortment of never out.
Routes that are competitively price and consistent that goes a long way I think that easy never goes out of style, either and our small box format discount neighborhood store getting in and out easily with omni channel.
Is that we've got now being the number one total according to total retail omni channel at a company out there we're letting her shop on her team at terms convenience, we're adding more stores, our assortments improving we're adding services at our online like lease online pickup in store and end friendly. We we've got the highest end cash flow.
As we've ever had at some of the highest I've ever worked at in a in a retailer and I think all of that comes together with our operation Northstar strategy going into 21, where we're going to complete the rollout of lot. The Q, we're going to continue to leverage pantry optimization, we're going to grow broyhill closer to $1 billion business over the air out years ecommerce continues to strength.
And and and our funding enable programs continue to get better so I'm optimistic about our core set of strategic initiatives and the on the new customers that we gained this year going into next year.
That's great. Thanks, so much for that period and good luck with this quarter guys.
Appreciate your EPS too.
Thank you. Our next question today is coming from Peter Keith from Piper Jaffray. Your line is live.
Hi, Thanks, Good morning, everyone and nice results I appreciate the follow up on the last question just looking out at 2021. It does seem like you're you're closeouts are starting to pick up how do you feel about the business momentum there and end the team that's in place to us to go after and procure at those types of Closeouts. This summer.
Thing that you think was its going day continue to ramp rather significantly as as we look forward at the coming months.
Yes, Hi, Peter Yes, we're excited about our close out progress that we've done this year, we are growing our closeouts across all categories with exception of seasonal which is more.
Self explanatory, but continue to see us grow in all categories, I think really where we're looking at end targeting is its penetration where at the intersection of quality of the close out on price makes sense for her and I think there is a long runway there going in at 21 in years beyond I, We've got a good heritage at good much.
So at big lots of where.
Merchants that understand the art of the deal on looking for these opportunities and we've seen at some of the greatest growth so far in soft home apparel hard at home and we'll continue to get after that Jack that's now our new Chief merchant. He has got targets by by category for Dms and Gmms at we've continued to practice started the day.
Ill training Weve got weekly reporting on this end, we're growing our sources.
We really think that.
Our job is to be value creator is out there in the marketplace and this is a great way along with our own brands and are never outs competitively price to give her what she needs. So we see more promising growth in this area.
Okay that sounds exciting.
A second question would be for Jonathan on your comment around gross margin flat year on year on somewhat surprising because of they are lapping a 180 basis point decline from a year ago. It seems like your your seasonal products are going to have effectively no mark downs.
You highlighted mixes of one minor driver, but most of the categories of start the quarter seem margin accretive so that kind of landed on freight at I guess is that becoming a rather meaningful headwind. It seemed like the of mathematically it could be 150 to 200 basis points of of margin headwind on the quarter.
Yeah, Hey, let me give you a little more color on that yes, it's not the freight headwind is not that significant I mean, it's it's it's somewhat meaningful and it's reflecting the fact that.
Yeah, I think you've heard it from from other retail as there is a lot of volume going through.
You of system right now we've got a lot of inventory flow through at Dcs, we're getting from detention charges full.
Well time us little longer than usual on then just the actual transportation rates.
So that is effect to entry optimization is us some upgrade of factory in Q4 on that if you know that strong pumping consumables driven by stock of but also by pendry optimization in general has it as a negative impact on gross margin rate. We think we're getting us back through topline, but it does impact the rate a little bit and then.
We've had all year as you know a little bit of adverse shrink effect. We will begin our next cycle of physical inventory than January and we'll get a new read on where we are coming through the next cycle, but we've had that headwind resulting from last years.
Physical inventories that we've been dealing with throughout this year so that.
Some of a few individualize Adams, adding up we do overall expect to be somewhat less promotional than last year on we will still get a markdown of promotional benefit, but it's being largely offset by those other items.
Okay. Thanks Thats helpful. Good luck with the rest of holiday guys.
Thank you David.
Thank you. Our next question today is coming from the line of Anthony Chukumba from loop capital markets provided at our lives.
Hi, Good morning, Thanks for taking my question and congrats on the strong quarter.
So just two quick questions.
You talked about at E Commerce, and BOPUS I was just wondering if you could give us any color in terms of the pennant sales penetration from E Commerce.
And then.
That's my first question.
Yep.
Thanks, Anthony and good morning.
Just first off we're so proud of our E. Commerce team. They are truly playing to win and we're pleased with our growth and in the quarter, 70% in Q3 alone hundred 70 basis points of overall comp for the quarter at contributing have coming from E commerce and traffic up over 50% I'd say as you break it.
Down BOPUS end curbside pickup retail remains the majority of that of that growth and about 50% to 60% of the overall growth and we're pleased with that because its profitable delivery on her terms. We are proud of the fact that we offer at same day delivery with Instacart and now with pickup and that continues to.
Grow at a low and is it and is a gap is becoming a significant part of the ecommerce growth and then two day to day delivery out of 47.
Strategically located at stores across the United States, given 90% of the US customers. Two day delivery is something that is truly enjoyed because it's a lower cost of her over a two day shipping period, and then adding big lots credit card and gift cards and that doubling the skews skews on that are being offered on line year over.
A year of all of these things.
Allowed us to truly grow this business and of meaningful and profitable way. We're excited about also being a true omni channel retail as we go through holiday here because last year, we weren't able to do the things. We are this year. This year, we are able to offer all of this and shipping all the way up to December 18th.
Which allows us to play at compete with the pure plays and also our past that day to deliver to the customer she wants to come into our store and shop of to Christmas or curbside pickup so at a little bit of a breakdown of where we are on E. Commerce and we think we've got a lot more room to grow.
Got it and then you talked about close ups being up 50% and I'm. Just wondering if you could give us any sense for I'm, assuming they are not a terribly material percentage of your overall sales at this point, but it was just a color in terms of what how much they're contributing thank you yep yep.
I'd say, it's a good question with a tremendous sales growth we've had over the year of the close out penetration can't get of bit lost in the at the denominator gross but.
But it is a it's still a slightly less than 10% of overall penetration of the store and but with the interesting thing is to see the dollar growth and what could be year over year like we said at nearly 50% on a quarter and this is all about us starting that engine backup with our of our supply base and getting the connections out.
And constantly growing at and what's really nice about these closeouts is is a tremendous treasure on an excitement our customers get from at especially cross all of these categories like I said earlier, the soft home area getting a end with apparel AD and the items of we're able to bring along with hard home. All these things. These are exciting products at great price.
This is good quality at tremendous value and end at good margin points for us as a company. So were happy about this and we see a long runway.
That's helpful keep up the good work thanks, guys at.
Thanks, Thank you.
Thank you. Our next question today is coming from Todd English from Goldman Sachs provide us allies.
Hi, Good morning. Thank you for taking my question on congratulations on this channel quarter.
You guys talked about fueling GAAP ship from store capabilities to 47 stores I'll turn it can day delinquency.
Could you perhaps talk about what the lead side day, how should be think about the pace of drilling out and what sort of margin implications does that fully investments from an EPS Cheney standpoint, any additional labor requirements on.
Any DC savings at.
Moving on to the initial thank you.
I'll start with us and on I'm not sure we're going to get into the details of the other numbers at Chanate, but I will tell you that we are excited about adding.
Our delivery service to 47 stores as you implied in your question, what's nice about this as we give our customer another option other than same day or five to seven day shipping from at DC, We're now able to reach 90% of the us customers that we serve in a two day delivery with help from our Fedex partners and sales.
These these stores have minimal labor and their backgrounds to set up the shipping shipping lanes and it hasn't it's been somewhat nominal I think at the current current.
Current situation and I'd also say that as we look across our fleet of stores of.
This may be of expanded program in the out years as we continue to lower the freight costs associated and May be increased service time, and then once again as you implied it definitely takes a load off of our E Com distribution center in Columbus, and so this is overall a win for us at a win for the customer and day to day.
Really comes down to our order management, our distribution order management systems, which we continue to improve and ER and reduce split shipments and other friction points for the customer. So we're excited about where we're going with this.
Not sure we want to go on to all the numbers of at at this point, it's early and debt and she's enjoying this service.
Thats very helpful. Thank you and if I may follow up on waived anymore.
2021, 2022 longer term question on just your real estate loan, obviously lots going on with the market how should we think about.
Store openings license clothing opportunity on me.
Negotiations that may come about congestion on Chen good at prospects as you think about share store footprint in the future. Thank you so much.
Hey, John its Jonathan I'll be happy to take that will on yet so as we alluded to in the prepared remarks, we are planning to have a significant acceleration in net store count growth, we're going to end this year with a net four openings and closings. We did pull back early in the year on openings you back in the very early days of the of the co had crisis.
And then at least in number of those of ended up moving into Q on of 21, So we're going to of a strongest Q on opening cadence for many years.
It's coming up and that will get us off to a good start in 21 overall, but at what we're planning for us a much more significant net store count increasing 21 that we've seen this year on them from where we've been on average over the past 10 years of so and then we believe real estate will generate a significant opportunity for us. We think we can keep that pace going we think there are.
Significant opportunities for us both at our conventional stores and potentially in some other formats. The way, we're going to be exploring and at the high priority is for us from at from a gross number over the over the coming is one of the reasons why we are more confident about that is the scope of homes intervention program, we've been running as a day.
It was able to us to significantly reduce the number of stores were going to close at obviously, you're getting on net store count of can be a combination of both of us opening more stores those at closing fewer stores. So we feel good about that piece of it and then we have much better analytics now part of it because of the date of we've been able to export from a CRM database about few of customer is where.
Do we have opportunities in markets that we we havent penetrated significantly in the past and Thats opening up areas of opportunity for us to to significantly grow store count over the coming is so it's a critical level for US. We are very excited about the opportunity there and and you should expect to see an acceleration in 20 low.
Thank you so much.
Thank you. Our next question today is coming from Paul Trussell from Deutsche Bank. Your line is alive.
Hi, Good morning. This is debit card on on on for Paul on congratulations on the nice quarter.
So that's kind of a bigger picture question just wanted to ask about the of all start writing gets of details around the evolution of the category mix. This past year on kind of how you kind of heat evolving we are moving ahead.
Hi, Debbie this is Bruce I'll tell you what we're really pleased with the assortment. We've had in 2020, especially when you consider the tremendous roller coaster, we've been through all of Americans have been through the world for that matter with kind of at 19, I think that we have a nice balance overall at a high level between essential every day.
Needs for the every day Jennifers shopping and we hope to continue to refine that so we get more of her shopping trips through the year and we also have a nice blend of assortment for the home you know and more and more people I think even past of at 19 theres going to be more of a cocooning of working from home a trend that will get us that's going to prevail over.
The years and I think we havent nice assortment as well very well situated at to improve the at home environment of work from home environment. The school from home environment, both indoor and outdoor furniture et cetera. So I think overall net.
How we play into everyday essentials, and and convenience at work live school at home is key I think that we like I've said before we are we're going to continue to lean into value and that value is kind of crime across all categories with our closeout penetration increasing we're going to also lean intevac.
All you through owned brands, where we can.
Offer great quality product at a at incredible price to our customers and then compete on the convenience of everyday items that she expects of the consistency on on on competitively price at name named products I think we'll continue to see growth at consumables.
Cleaning trend the the needs of the in the house will continue to grow that will be something that we prepared for that we are prepared for and we've we've emphasized that on our pantry optimization will continue to adjust that I think our seasonal business will continue to grow and we'll lean into that as well. It's a strong business is what we're known for.
It's a traffic driving business for us overall soft home hard home and furniture all of those categories are tremendous growth categories for us where even end more normal times, we've been taking market share with our double digit growth in furniture, So we'll lean into those areas as well. So so I think the key thing is.
At work value creators and we are obsessed about finding value of deals in all of those categories, but I think overall, we're situated nicely and we may be testing of few other whitespace opportunities like how far we can go into apparel, where it makes sense along with some other categories through the year at would then set us up for 22 on VR.
Great and just a quick follow on wanted to ask about your effort to reduce your cost base and maybe where you kind of are there opportunities.
Yeah, Hey, guys ill be happy to take that one.
We have made excellent progress on that and again, it's really a two pronged approach one is looking at our cost base from a structural standpoint.
And that goes back to the original hundred billion dollar target savings goal, we put out euros at lower go at this point of then sort of bottoms up approach of being frugal at how we think about all of all of our expenses. So were pushing on both of those fronts and we continue to see as we said in the prepared remarks opportune.
It is at a range of areas and in 2021.
We think that the whole from the journey program is still go some significant legs to it and frankly will go on us and 21 of the but beyond that I mean, it's really ongoing mindset to continue to take cost out of the business, but multiple areas of opportunity as we referenced in the prepared remarks.
Great. Thank you best of luck.
Thank you David.
Thank you on next question today is coming from Karen short from Barclays. Your line is our lives.
Hi, Good morning. This is actually we're not on discounts on on for Kevin. Thanks for taking my questions on.
So first I just wanted to follow up on the on the some of the discussion around 2021, I'll specifically with respect to you know how how you're going to manage at Pinedale and whats, obviously pretty volatile environment. If you look at on consensus from next year has you down at down 7%.
On comp on which may or may not be equal see what actually happens but that.
That type of shellshock implied hundreds of basis points of de leverage before taking into account any any cost on like as you may have on so just wondering if you could help us frame, how you're thinking about the PM on that type of scenario on maybe some of the levers you can pull to manage.
Yes, Hey, we're not a I'll be happy that at the Hell without it and you're right at it certainly is a more complex story of unusual and it's also a different story by quarter as you go through the year, depending on what we're up against quarter by quarter. So we're also spending a lot on looking of that thinking about what overall trends will be.
I want to go back a little bit of stuff that question of with what gross was talking about earlier at all the initiatives. We have rolling out if you go all the way back at the beginning of this year, we talked about that at the we accepted our expected at comparable lives to progressively get better through the year as we as we rolled out things like the low on the Q and Patrick optimization of Roy Hill and.
Our E com capabilities and that story has been masked by other things that have gone around investing in stimulus, but but it has held true and if you look at our underlying performance. We have seen we believe an acceleration.
In calls through the year, which will support us going into 2021 on a as you get into any one quarter by quarter of it is a different story of and in Q on of.
2020, we had the sort of stock of effect on much which we'll lap of that degraded on margin to some degrees Willoughby margin benefit from roughly against that.
But we would assume at this point of US is reasonable likelihood of investing trend will continue to some degree at least into Q on and then we'll start to lap it as we get further into the year and then what we also know from this year is that had we had more inventory at certain points in the year, though that we would have been able to do more sales of that's a bit of an opportunity as we think about 2021 of the.
I think of some of those areas and then from an overall margin of expense standpoint, we're still working through through all of that a big wildcard in all of this is obviously, whether there's any.
Second round of stimulus momentum.
That seems to have picked up a little bit in the last couple of days, but we'll see as we plan on our own business. We haven't counted on that we're trying to make sure. We're planning at appropriately conservatively, but as that comes at could certainly be a significant game change of the first off of 2021 of them on potentially be on that but we are working through all that detail now I'd say that.
One of the critical point that we take out of 2020, as we learned about our ability to be much more nimble than perhaps we thought we were in the past and we've been able to react really quickly through 2020 and not just piece of us stuck on.
And on locked into a particular plan.
At I think that gives us confidence that we will be able to react as we move through 21 in a simple way, but I think the most important point from my perspective is that the underlying strength of our business of our strategies should serve us well in 21, regardless of the reversal of any stimulus or other impact.
Okay. Thanks, that's helpful. And then just wanted to follow up on some.
Some debt on you talked about doubling on the skews on what was wondering if you could speak to the percentage of the interest or sort of maybe thats actually available online today.
Your assets to continue to expand at and then curious about where you think you are with respect to the ecommerce investment cycle and at what levels in panic of investments, we should be expecting going forward.
Yeah, I'll start off with at the at E Commerce growth in the two at skews from last year. I mean, those are basically I mean, it's not every skew that we cover in store, but our ability to have that assortment available and to be.
Curbside pickup or ship from store at this point is is a great improvement from where we were and it's not incremental and that's in the sense at we're creating redundant skews or more cost, we're being able to leverage our our infrastructure for that which is of profitable way to grow the E Commerce business.
The GAAP in terms of investment in E Commerce some of the major investments we did this year.
Have been absorbed at this point in terms of returning all the instant turning on the Instacart the pickup delivery system.
As well as the 47 stores, but.
This is a lot of in house work at our team working with our E Commerce team at just under an.
On an unbelievably great job being scrappy about this so end at 21. This is really about now bringing operational excellence into the into the mix and refining the processes, making them better maybe a few systems tweaks. So we're still a ways off from of any major system overhauls on infrastructure overhaul.
We've got a we've got runway here, so it's more of an improvement incremental investments rather than stairstep.
Okay. That's great and then just one quick one if I may on on all of which often price I missed at club.
Wondering what that was in the quarter on what you're expecting to look like interest for Q and then as we look at into next year on.
On what your expectations are in terms of how much of diesel on good call. So you expect to just at the land banking.
You kind of broke up on us I'm not sure. What you were at what you were asking the first party question debt costs or something in Q what was that.
What the Colgate costs were at a three Q.
What are your expectations off of Fourq, you and then from next year.
How much of the cost of you expect to stick around.
Hey, we're not there yet so we're running five of $6 million of incremental cleaning costs and supplies.
Thats the primary ongoing cost of we're referring to obviously on top of that you through 2020, we did place from Oh hourly rates, we pay them.
Store bonuses and corporate bonuses for that matter of than unusual given the very strong performance for that type of $6 million, we assume will continue at least.
Through the first two quarters of 2021 at this point.
Great. Thanks of the column.
Thank you next question is.
Our next question is coming from day to US from Bank of America. Your line is alive.
Thanks for taking my question.
Can you provide more color on the low double digit rate that you're seeing quarter to date and if that represents a moderation from threeq you what that attributable to.
Then also has that rate been consistent so far now through Black Friday.
I'll start off and Jonathan will on get more precise I believe but we're happy that we that we've had a good start to the Q4 of we've been managing our promotional cadence very well.
We did a nice job on Q3 that continues into Q4.
We closed partially on Thanksgiving day, and that was something that decision. We made with our customer end mine and also our associates of mine and we noticed that in past that most of our Jennifer shop early and finish up by a at one PM on for the most part and that allowed us to stay.
Open for her needs and also get ourselves back on with their families to enjoy Thanksgiving.
Expectations Wise, we met expectations on Black Friday on the weekend cyber Monday, as well and so overall, we feel very good about how were positioned so far through the through the quarter, we do know that and for the most part that at double digit low double digit comp we've seen some buildup and essential.
Sales of but it's been it's been across the board at good with the cocooning nesting at home trend at that continues to play out well and and like Jonathan said earlier, the seasonal Christmas shopping or holiday shopping started all of it back in October X continued through and we sold through very well so of the other categories of contributing I think as we.
We look at this.
On the elongated and moderated.
View towards the rest of the quarter is the fact that you know Cove at 19 is raging out there Theres government regulations that are coming in place here people are staying at home more and more we do believe that's going to have an impact through the quarter.
It's going to be it's going to be a tough quarter for many many folks were going to do our best to continue to serve our customer on her terms, especially with at a really well bill omni channel offering at this point of but.
But when we look at it we do expect some moderation at a form of traffic to start to decline a bit and I will be comping, a highly promotional activity from last year with friends and family event that we won't have this share but will will allow her discounts shop on her terms, but we do expect there will be a moderation and.
And we want to go at it realistically.
Thanks, that's helpful and.
And then at the follow up question could you give an update on where the easy leasing penetration stands and just in general if you could provide any commentary on how that offering has pick on that helpful. Thanks.
Yes, we've got great partners with with progressive on easy leasing and it continues to be a service that our customer enjoys you know allow sort of live big save watch this year or early on you know of with the stimulus package. She did not require as much as prior years I think we called a recall at high double digit.
Teens and pass penetration that came down slightly on the first half of the year still remains down you know for the most part of but we expect as we as we get post Cove at those numbers on that penetration level increase again.
That's really helpful. Thank you.
Thank you at next question is coming from Brad Thomas from Keybanc Capital markets. Your line is now live.
Hi, Thanks for taking my question one of the follow up on on Us.
Some of the topic of promotions I think for cyber Monday, you guys picked up the promotion EBIT from last year, because 25% off the share versus 20% loss share I guess I was hoping to just think about.
Is it just sort of a unique for that day online offering are or how are you thinking about our promotions in general going forward, obviously at the understanding of had been dialing them back.
Over the past six months or so on <unk>.
Yes, Oh go ahead, Jeff, Yes, Hey, Brad.
I'll take that one of them at Bruce.
Once to at on yes.
Yeah, I mean generally speaking you at say right, we've been less promotional and Thats broadly have been the case through Q4 as well at.
And you of the cyber Monday promo was probably a bit of an exception on that from but at the unique day in and we sort of as appropriate to do that on that day.
But generally you're intensity has been less of that will remain less in Q4, and then on top of that we are working to be more effective at how we deploy markdowns of promotions. We think there's some opportunity of overtime there with some new tools with looking to roll out of the will will help us on that from yeah broadly speaking, we've we've been less promotional.
Needed to be less promotional and some of the because of the way the shopping patterns of change.
And we were comfortable running a whole house weekend friends and family of funds, we spread some of those promotions at a bit but overall as we pulled out of the last couple of quarters, it's been less intense and we expect to remain so certainly this quarter at into into Q1 day.
Yes, I'll just add that to the tail part of what Jonathan said, there at Jack Castello the team.
We're all looking at this from how do we get in and out of out of sets better how do we get into out of promos better at what should they look like I mean, sometimes when you. When you have these high low sales over on weekends at notches in a normal time not with coveted it's hard work on customers as hard works work on the company as well.
So how do we buy better allocate better sell better and make it less less or less friction in the process of being much more productive and end customers must be much more happier in the way as we lean end to closeouts that becomes an easier value proposition as well as on brands and and so we've learned a lot through.
At 2020 in terms of how it can be much more effective in promotional cadence at will that will be applying those learnings and at 21.
Great. Thank you so much.
Thank you we've reached end of our question and answer session on let's turn to that flow back over to management for any further or closing comments.
Just want to wish everyone, a very happy holiday season be safe out there as day happy and healthy and thank you for your time with us today.
Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.