Q1 2021 Big Lots Inc Earnings Call
[music].
Ladies and gentlemen, good morning, and welcome to the Big lots first quarter conference call.
Currently all lines are in a listen only mode.
The question answer session will follow the prepared remarks.
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As a reminder of this conference is being recorded.
On the call today are Bruce for 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 that are subject to the Companys safe Harbor provision as stated in the company's press release, and SEC filings and that actual results can differ materially from those described in forward looking statements the.
Company would also like to point out that were applicable commentary today is focused on adjusted non-GAAP results reconciliations of GAAP to non-GAAP. Adjusted results are available in today's press release I will now turn the call over to Bruce Cohen, President and CEO of Big lots of Mr. Thorne. Please go ahead.
Thank you and good morning, everyone. We just completed another outstanding quarter, while we knew that the comparisons were going to be tough and they will be more so as we go through the second quarter. We continued to see strength from our core underlying business and are successfully executed operation North star strategic initiatives.
In addition, we were positively impacted by the third round of stimulus distributions beginning in the second week of March which further enhanced our topline and gross seller inventory of sell throughs as a result of all of the above comparable sales for the first quarter increased 11, 3% versus our guidance of low single digits and non.
At an earnings per share were $2.62.
The marketing are strongest from first quarter ever.
As we have seen over the past 5 quarters for feeling increasing demand, while rolling out our operation North star strategic initiatives, delivering new omnichannel capabilities, demonstrating agility and improving how we serve our customer.
Focused coordinated and dedicated execution our teams in store and the distribution centers and in our home office have taken our performance at the next level and I want to take this opportunity to thank them all for their efforts and contributions none of this could be possible without your dedication and care for our customer.
Helping her live big and save lots, we were particularly pleased that our strong results enabled us to reward our tens of thousands of store and DC hourly associates with special cash bonuses for the quarter.
Before addressing this past quarter in detail.
I wanted to give 2 important corporate updates for.
The big lots of began the year by publishing our first annual corporate social responsibility report, we take our role as members of the community very seriously and continue to make sure that while we are playing the win we're also doing good by doing right respecting the environment, giving back to our communities and ensuring we have an inclusive equitable.
And diverse workplace, Inc.
Courage you to visit our website and review of our report we are proud of the direction that were taking and we are looking forward to making even more progress in the future.
Second I want to formally welcome standard Campos and Kimberly Newton 2 the big lots of board of directors.
Android is the Chief Executive Officer of project, K, and former Chief Executive Officer of Diane von Furstenberg Cam Newton is the former senior Vice President of consumer experience for Hallmark cards, both bring a wealth of experienced the big lots with the specific appreciation for driving sustainable growth and consumer focused.
Basis.
Andrew Kim complete the board that I truly enjoyed working with and that pushes our company to do better in a thoughtful and sustainable way.
Now I'd like to turn to updating you on our first quarter. Our performance was strong versus last year in each month of the quarter driven by basket size and greater than expected sell through in all categories, but especially lawn and garden, our performance versus our expectations accelerated mid quarter with stimulus distributions under the American rescue.
The plant at <unk>.
During Q1, we had more appropriate inventory levels and for most of the past year. The continue to have room for improved in stocks.
<unk> too much of last year as inventory quickly sold through we were able to navigate through the quarter with fewer promotions at initially anticipated.
This reduction in markdown significantly offset the impact of higher supply chain charges.
All merchandise categories performed well and posted strong comps versus last year with the exception of food and consumables with each comped down 15% to the being up against last year's corn chain related stock up spending.
Despite the declines we are pleased with our food and consumables performance for the quarter and food. We have started to see a bit of a shift away from grocery and baking categories and into more snacks soda and on the go food and.
And consumables strength in health and beauty 2 major areas of focus for the pantry optimization initiatives helped to offset the effect of lapping of the stock up on paper and household chemicals last year.
Pantry optimization continues to perform well and is the key driver of our consumables performing stronger than food on a 2 year comp basis. In addition, we continue to strengthen our vendor relationships in this category to create even more value for Jennifer.
Furniture had another strong quarter with comps up 14% versus last year, thanks to growth across all departments, especially of upholstery and mattresses and.
And ready to assemble home office continued to shine with nearly 50% growth. Thanks to sustained macro trend changes as well as an increased offering of desks and chairs sales.
Sales of our broyhill branded products are a priority for the company as part of operation North Star and represented 18% of total furniture sales and 29% of total upholstery sales for the quarter.
Our seasonal assortment, which includes the patio lawn and garden and spring holidays, such as Easter in Valentine's was the true highlight during the quarter Comping up 51%. This was driven by wonderful new assortment of patio and outdoor furniture, even with macro supply chain pressures in some of arrival delays, we were able to get product out in front.
Of our customers starting in February and have been able to sell more product in prior years with less discounting.
Soft home had a very strong 21% comp increase led by robust trends within the home organization decorative textiles flooring categories home organization saw 24% growth driven by plastic storage and increased closeout in hampers baskets and wasting assets.
Kitchen, textiles, and decorative pillows, both delivered high double digit comps in conjunction with strong performance in lawn and garden patio and small rugs, which include broyhill branded accent rugs, both delivered strong comps of around 30%.
Apparel now included in our soft home category continued to grow in sales penetration with nearly a 90% comp partly fueled by an expansion of space for this key category, but also by brand of Closeouts and strength and performance in accessories, we experienced strong sell through and graphic Tees women's fashion tops sweatshirts and jogger appear.
For all Closeouts continue to grow with our apparel business as we create even greater value opportunities for our customer.
Hard home comps were up 9% to last year with electronics, delivering double digit increases driven by phone accessories, and charging units computer accessories and the introduction of televisions.
Key areas such as for carrier kitchen, appliances, vacuums, dinnerware, and hydration beverage delivered a nice double digit comps, partially offset by lower comp sales and fans personal care and housewares closeout.
Closeouts and hard home grew nearly 60% over last year with the ongoing supply of small appliances vaccines cookware and electronic opportunities.
On top of our strong performance across categories. We have continued to see productive growth within our active rewards membership, which reached an all time high in Q1 of 'twenty 114 million members and was up 12% year over year, we enrolled 2 million new members in Q1 and rewards customers in total spend of 20.
7% more than last year, and 12% more per customer.
For 72% of our sales this quarter were attached to our rewards membership, which is up 800 basis points to the first quarter of 2020.
Finally, we continue to see great reactivation through thoughtful win back programs.
Staying with our focus on attracting and retaining new customers for the big lots of brands. We are thrilled at this quarter marks the initial rollout of a new brand campaign. The campaign titled be of Big generic is grounded in extensive consumer insights around why customers loved the shop us, including going all in on celebrating every at holiday.
And outfitting their homes with high quality on trend furniture, and decor that has exceptional value. She sees us as the home of the hunt for exceptional bargains and surprising treasures our customers in all of American superwoman that allow us to celebrate her uniqueness and sense of style out.
Of these insights came the idea of the big generic someone who feels like a million bucks when theyre shopping for deals at their neighborhood at Big lots. We're kicking off this campaign in Q2, featuring an actor and comedian at truly encapsulates our brands Red at best known for of starring roles and good growth in parks and Recreation why is he still perfect to kick this off.
Because she has been shopping at big lots of for years and of personality reflects the spirit of our savvy shoppers. She told US I'll never forget hosting my first holiday party at my timing of Los Angeles studio apartment years and years ago, what I lack of space I made up for in holiday spirit from dishes to the core I deck every hall.
And what the the essentials from my neighborhood Big lots not been shopping there ever since we are celebrating our community of big and errors and inviting new wants to join in on the front end savings.
Moving on to E com, our investments have continued to drive the business with 30% growth versus the first quarter of last year and continued growth in penetration of total business with continued increases in traffic and conversion.
Moreover, e-commerce demand saw significant growth in both of our key furniture in key season of lawn and garden businesses. Our recent omnichannel initiatives to remove purchase and fulfillment friction such as buy online pick up in store curbside pickup and ship from store and same day delivery with instant card the pickup had been very successful.
And drove around 60% of our demand fulfillment for.
For the balance of 2021, we will be expanding our ship from store capabilities. The 8 additional locations, bringing the total to 55 in time for holiday.
Additionally, we are continuing to expand the payment type of choices on sites include Apple and Google of pain.
Our peripheral business continued to outperform our expectations broyhill generated over $225 million from Q1 sales after registering over $400 million, Inc. Full year 2020 sales after a mid spring launch well on its way to becoming an established the $1 billion brand. We remain excited by the outspend and rich.
<unk> shopping behavior that we see from our broyhill customers as.
As we turn our attention to our lot in queue line strategies I am pleased to report the lot is now rolled out to over 1000 stores in the front end queue line is approximately 200 stores.
We continue to achieve around at 3% incremental combined comp lift from these 2 strategies.
Based on the success, we are continuing with our current strategy to ensure that the rollout of the lot in key line footprints and assortments reach over 90% of our stores by mid year.
As we have discussed on prior calls a key aspect to our operation North Star has been a keen focus of our expense architecture to assist in funding our initiatives, while Jonathan will discuss SG&A in more detail. Shortly I continue to be impressed by our strengthening culture of frugality on top of our sales growth, we have been able to match.
Managed our SG&A for significant leverage and are on schedule to deliver and exceed $30 million of structural expense savings for 2021, bringing our cumulative savings under operation North star to over $130 million.
These SG&A savings in our top line growth will help fund key investments needed in our supply chain to increase throughput improve the efficiencies drive in stocks and support cross channel demand we.
We are pleased with the progress we are making with our for bulk and furniture deployment centers. The first of which will open in late summer with the second opening shortly thereafter. In addition, we are continuing to rollout the final phase of the new transportation management system or Tms over the past 12 months, we went live with new procurement and inbound module.
Which optimized mode selection and quickly adapt to the market conditions. We are now in the midst of going live with our outbound module, which will optimize expense and timing for delivery to stores.
Another 2021 priority is to enhance the customer experience in our stores, particularly those stores that did not flow through a full remodel under our store of the future program.
This quarter, we will begin of multiyear program, which we're calling project refresh to upgrade our stores with new exterior signage interior repainting and update of floors and bathrooms.
This program will ensure a more consistent brand experience across our stores, we have been piloting a number of stores over the past few weeks and expect to get going on of broader rollout in the next couple of months at.
As we begin to rollout at the beginning of a brand campaign, it's important for us to refresh our fleet as well.
Importantly project refresh will come at a much lower cost per store than our prior store of the future conversions.
We continue to look for even more impactful ways to enhance our in store experience. As an example, given the growth and continued strength of our furniture assortment. We have been testing of new sales and staffing model and around 35 stores with dedicated train furniture sales associates on the floor throughout the day, we are seeing double digit sales lifts in these stores and will be.
Expanding the program to a larger group of pilot stores over the next few months with the potential to accelerate the rollout significantly in 2022.
We remain excited by the expanded merchandising opportunities in the business and we are focused on driving customer centric deals. Every day. These include expanded big buys and great deals across the store comprised of Closeouts engineered closeouts and value sourced products.
The growth into new categories like apparel of gaming luggage and sporting goods combined with expansion in core areas of growth in pets small clients consumables home office decor and seasonal relevant merchandise are serving our customer demand well as.
As we focus on the item merchandising and key value messaging, our customers responding well.
As we discussed during our last call we are launching new data driven space planning capabilities. This year and are well underway.
Much of the background work and development has been the ore is being completed and we are looking to go live with the platform in late Q2 with benefits beginning to be realized in full as a reminder, we will be using analytical tools to curate our buy cycles optimize floor plans for store further optimize allocation and replenishment.
And improved store compliance for plan of Graham execution, all of which will enhance our customer satisfaction and per store productivity through a more relevant customer store.
Along with our merchandising initiatives and E Commerce, driven growth, we continue to see significant volume and operating profit opportunity from store count growth.
Our net store count growth will accelerate in 2021, and we expect further acceleration from 2022 and beyond this will be driven by both increased store openings, but also by slowing the rate of closures as a result of our highly effective store intervention program.
Our first quarter was strong and that strength has continued into the start of Q2 as we look at our performance throughout 2021, we'll be referencing comps on both the 1 year end of 2 year basis comps versus last year will look artificially deflated as we lap the first stimulus driven sales period growth versus <unk>.
19, though will highlight the underlying growth trends of the business and reflect the impact of our operation North star initiatives at.
Jonathan will discuss further we expect to end the second quarter with negative comps versus last year, but of strongly versus 2019.
We expect to continue driving significant improvements in our underlying performance and shareholder value creation as we further strengthen our assortment and in stocks improve our supply chain intelligently invest in our strategic opportunities and manage our expense architecture with true Gallery.
At the tough comparisons to last year in the second quarter. We are confident that our overall growth story will continue to be resoundingly clear I'll now turn the call over to Jonathan for more insight on our financial results for the quarter and our outlook.
Thanks, Bruce and good morning, everyone.
As Bruce just said the first quarter was very strong driven by our underlying strategies and strong consumer spending resulting from the most recent round of stimulus.
This was all brought together by our team is working very effectively and focusing on creating value for our customer.
Net sales for the first quarter of $1.62.6 billion of 13% increase compared to 1 for 3.9 billion the year ago.
The growth was driven by a comparable sales increase of 11, 3% end, which included the significant benefit from the new round of stimulus payments under the American Rescue plan Act not factored into our low single digit guidance for the quarter.
Comps were driven by strong basket growth of <unk>.
Which of those mix shifted towards higher ticket categories.
So positive in each month of the quarter was strongest in March on both the 1 and 2 year stacked basis.
Net income for the first quarter was $94.6 million compared to $49.3 million in Q1 of 2020.
Diluted EPS for the quarter was $2.62.
As a reminder, we reported EPS of $1.26 since last June.
EPS for the quarter was far ahead of the original guidance of $1.32 of $1.45.
Reflecting the significant sales beat strong control of expenses and some modest benefit from share repurchases.
Gross margin rate for Q1 was 42% up 50 basis points from last year's for this quarter right.
With the significant reduction in markdowns offsetting freight headwinds end, along with positive mix of eggs, enabling us to come in slightly ahead of the beginning of quarter expectations.
Both of the markdown savings on the freight headwinds were greater than initially expected with free costs, causing close to 100 and sort of a 180 basis points of gross margin contraction year over year.
Total expenses for the quarter, including depreciation were $531 million up from $496 million last year.
Key drivers of the increase was $12 million of additional expense from the sale and leaseback of other distribution centers 9.
$9 million of additional store in Copa bonus expense of $9 million of high of noncash equity comp expense.
All of the expenses were roughly flat to last year. Despite the significant sales increase.
All of the above drove us to an operating margin for the quarter of 7.5%.
It was 5.2% of last year for.
First quarter record despite the impact of the freight headwinds on the expense impact from the sale and leaseback of of distributions centers last year.
Interest expense for the quarter was $2.6 million down from $3.3 million of the first quarter last year, primarily as a result of paying off the balance of our unsecured line of credit moving in 2020.
Partially offset by a notional interest associated with the gain deferral on a sale leaseback transactions.
The income tax rate in the first quarter was 21.8 per cent compared to last year's rate of 27, 2% both impacted by discrete items related to the settlement of equity awards.
Well, it's the discrete items. This us income tax rate was 27, 1% compared to last year's rate of 25, 9%.
Moving on to the balance sheet total inventory was up 12% to $901.5 million, which compares to our beginning of quarter guidance of about 15% of last year.
The 12% increase was driven by higher in transit inventory of the lapping of the typically low inventory levels of the close of the first quarter in 2020.
Inventories were down 3% to Q1.2019, despite the much higher to your sales trend and we look forward to fill the rebuilding inventory levels during Q2, while retaining strong 2 year turn improvement.
During Q1, we opened 13, new stores and closed 8 stores.
He was with 1413 stores and total selling square footage of $32.2 million.
Capital expenditures for the quarter was $32 million compared to $29 million last year.
<unk> expense in the first quarter was $34 million.
Proximately 4 million lower than the same period last year.
We ended the first quarter with $613 million of cash and cash equivalents of 32 million of long term debt.
As a reminder of at the end of Q1, 2020, we had $312 million of cash and cash equivalents of $437 million of long term debt.
This represents an improvement of over 700 million and the cash on hand.
We repurchased 1.1 million shares during the quarter of $78 million at an average cost per share of <unk> $67.45.
Under our previously announced $500 million share repurchase authorization.
There was approximately $250 million remaining as of the end of the first quarter 2021.
Share repurchase share repurchases remain an important part of our capital allocation strategy going forward.
In particular, given us significant excess liquidity.
As announced in the separate release of board of Directors declared the quarterly cash dividend for the second quarter of 2021 of 30 cents per common share.
This dividend is payable on June 25th 2021 to shareholders of record on the close of business on June 11.2021.
Turning to the second quarter, we expect to achieve diluted earnings per share in the range of $1.2 of $1.15, compared to an adjusted $2.75 per diluted share for the second quarter of 2020.
The guidance does not incorporate any share repurchases, we may complete in the second quarter.
As has been our practice over the past several quarters, we are not providing full year guidance on sales or earnings per share at this point.
The second quarter guidance is based on the negative low double digit comparable sales decline offset by a salesman of appeal.
Ultimately 150 basis points from net new and remodeled stores.
The negative column reflects the tough comparisons we are up against from Q2 last year, but of course.
Thanks to a round of 20% 2 year stacked comp.
We expect the second quarter gross margin rate to be down approximately 200 basis points for last year.
Driven by macro headwinds in freight some mix impact from pantry optimization as well as the impact from lapping the markdown benefit in 2020, resulting from the outstanding sell throughs.
Versus 2019, we expect the gross margin rate to be approximately flat.
As we discussed in last quarters call, we expect adverse freight effects to continue throughout the year.
For the full year, we expect the gross margin rate impact of approximately 125 to 135 basis points, resulting in gross margin rate being close to 2019 levels.
Modestly down to 2020.
We continue to focus on promo pricing optimization and shrink reduction.
Those of the margin levers moving forward.
From an SG&A perspective at our projected sales levels, we expect deleverage in the quarter with expenses down slightly to 2020 on a more significant decline in sales.
However, this will equate to strong leverage versus 2019, driven by a structural from the journey savings and our ongoing mindset of frugality.
We now expect SG&A expense stores for the year to be up slightly to 2020 with the Yankees the increase from prior guidance, reflecting stronger than expected sales performance.
On the year over year basis incremental expenses are driven by the sale and leaseback of our distribution centers investments in a new for deployment centers other increases in the strategic investments and higher equity compensation expense.
These increases are mitigated by more than $30 million of structural expense savings.
By the close of 2021, we will of achieve more than $130 million of run rate structural cost reductions versus the start of 2019.
We expect to drive additional savings going forward.
We now expect 2021 capital expenditures to be around $200 million to $210 million.
This outlook has moved up modestly as we continue to opportunistically lean into strategic investments to strengthen and accelerate the business.
These include slightly higher new store openings initial capital for a new store refresh program, adding more ship from store locations and other technology projects to enhance our customer experience in store and online.
We continue to expect to open between 50, and 60 stores in 2021 of which around 'twenty will be relocations.
While we continue to make excellent progress on holding down store closures through our store intervention program focused on diagnosing and addressing the root causes of store underperformance.
The 2021, we expect around 15 outright closures.
On the net basis, we expect total store count to grow by about 20 stores. In 2021. This will represent a meaningful acceleration from 2019 and 2020 and as Bruce said, we expect to further accelerate in 2022 and beyond.
We continue to expect inventory to increase significantly versus 2020 by.
By the right setting our inventory levels, we will be positioned to capture sales that we left on the table last year and greatly improve our customers' in store experience and we are seeing of clay convenient version benefit as inventories rebuild.
Additionally to mitigate some supply chain pressures, we will accelerate some receipts into Q2 ahead of the peak inventory build period in Q3.
Versus last year, we expect ending Q2 inventory to be up around 30% equating to up around 5% versus 2019, which will reflect strong turn improvement.
We expect similar to your inventory increases in Q3 and Q4.
Overall, our second quarter will mark tough comparisons to an exceptional quarter last year.
Continued strong growth from performance compared to 2019 of.
Now I'll turn the call back over to our moderator. So that we can begin to address your questions. Thank.
Thank you.
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Our first question today is coming from Joe Feldman from Telsey Advisory Group. Your line is now live.
Oh, Great Hey, guys. Thanks for taking the question and congrats on a great quarter.
Wanted to better understand the on the merchandising side.
You're starting to hear about some new products. We know apparel has been something you've been leaning into a little more.
I heard you mentioned television today.
Both of those.
Or all of what you are selling closeouts or are you actually.
Trying to have a more normal.
The flow of product in those 2 categories.
Hey, Joe This is Bruce I'll take big that.
Next question. Thanks also for the quarter.
Compliments, yes, we're really pleased with what we're doing in merchandising as you heard had double digit comps across all of the categories with the exception of food and consumables seeing nice traction on our operation North Star strategies.
And 1 of the things that we've done is use the locks as a.
As an innovation lab for what that left us with us.
Good insight as to what our customers want and 1 of the things that they want was the showed us that they wanted was apparel and so what we've done is we've leaned into apparel we're seeing.
Right Great response, with the growth rate there with our customers much of that either of those items are closeouts, but many of them are not we're seeing nice branded closeouts with justice non west, Georgia, asking in Bay Jones of New York.
Just to name a few so actually.
That is nice growth continued growth, we expect to expand that growth going forward. Both in closeout, great value for off price retail if you will as well as.
As well as normal stocking of that assortment the TV wasn't opportunity buying we had a major retailer cancel of by we wanted to see how that worked at work very well. It's the traffic driver and then the correlation of accident sales and that's something that we'll lean into and learn more going forward.
We're open for learning and adding more of traffic driving items that then have the customers shop, the entire floor and we're pleased with what we're seeing Jackson of nice job, bringing newness to the assortment and optimizing the assortment in both traffic drivers of margin drivers et cetera.
Yeah. That's helpful. Thank you and then wanted to can you share a little more color on the new labor model that seems like it could be pretty.
Important change for you guys going forward like does it include are you leveraging technology I assume and then new training and like the cost of rollout and.
Time to rollout of things like that maybe you can share.
Yeah.
The job.
Jumping all of that you're talking about the furniture sales mobile that we referred to in the script is that the.
The question.
Yeah, I thought it was brought us in furniture, but yeah. The that's what I was talking about you mentioned there was the new labor model, you're seeing of good lift and you want to have at an all stores.
By the end of next year.
And I was just wondering if you could share more color on that the the drivers and how it works in training and such.
Yeah. So I'll start on the surge of piece and maybe Bruce will want to comment more broadly, but what we've done is we've put the dedicated furniture teams into a number of stores, which where we think the significant opportunity to grow out of furniture business.
<unk> has done so the.
Dedicated they all the summer.
Body on the floor at pretty much of the entire time of the stores open and that is working very well and we're seeing a very nice return on that obviously there is a decent expense associated with it for the incremental sales, we're getting from that Oh really strong.
Also at testing, putting more things for image in some of those stores, which has also yielded very positive results. So we're very interested in that we've got a pilot running currently and then we see the opportunity to significantly expand that end in 2022.
Yes.
We're excited about the.
And at that that's helpful. Thanks, So much guys. Good luck with this quarter. Thanks Chuck.
Thanks, John.
Thank you. Our next question today is coming from Peter Keith Piper Sandler Your line is now live.
Hey, Thanks, good morning, everyone at.
Happy Friday to you.
Yeah, Jonathan you've done at a pretty good job of of not guiding but also providing.
Some helpful metrics, just around margins and inventory.
So I guess I'll have to ask you around sales.
When you look at at that 2 year stack comp of 20 per cent for Q2.
What would.
Prevent that from continuing for the rest of the year or do you wish at a good way to think of what that is at a decent run rate as we look at Q3 Q4.
Hey, Peter Good morning, and thanks for the question Yeah. So we guided to a 2 year stack of of around 20, which we're up against the plus 31 for from last year. So that implies low double digit comp for this year and that represents a moderation in the 2 year stack of a little bit from Q1, we do expect that as kind of moderate further.
In Q3 and Q4.
Yes.
<unk> to get stimulus benefit in first half most of that impacted Q1, but some of it is continuing to have an impact on Q2, we call at the federal unemployment benefits that will continue through the end of Q2, and then those effects will largely of played through at that point. So in the back half of the year.
We won't have the same benefits on the 2 year stack comp basis, we will start to get the benefit from the new child tax credit payments beginning in July so that should give us a bit of of benefit but that won't offset the impact of the stimulus from the federal unemployment that we've been benefiting from at the front half of the year the <unk>.
Other piece of that would be the next thing trend, which has been very strong for us.
We don't know exactly how that's going to play out going forward, but we assume that our total forecasting the there will be some moderation of that through through the year was.
Things returned to normal of people are out and about spending on categories outside the home.
Okay very good end, maybe on that at the.
The whole of investing trends. So we know that they were seeing enormous supply chain backlogs across the the furniture industry.
Looking at at furniture, specifically, how is your inventories position there I do believe some of your suppliers are U S based are.
Are you having any difficulty.
Getting part of it if not do you think maybe you're picking up a little bit more share because of your your in stock positions.
Yeah I'd say.
We've had challenges getting inventory throughout the CES there have been some delayed receipts because of some of the other.
The issues that are sort of widely reported around the supply chain challenges, but we feel increasingly good about our inventory levels are now up nicely year over year end as we said, we expect to be up around 30%.
The year of at the end of Q2, so at a much healthier place from an inventory standpoint, so it's been of a bit of an effect, but we believe it's working its way through the system and we're going to be pretty close to where we want to be pretty soon that.
Okay sounds good thank you very much.
Thanks Peter.
Thank you for our next question today is coming from Anthony Trickled book from Loop capital markets. Your line at that life.
Oh, good morning, and let me share my congratulations on a strong quarter as well.
So my question you mentioned I thought I heard that you paid a special cash bonus to all of your store in D. C Associates and I guess I just had 2 quick questions first off what was the total amount of that bonus and then second do you anticipate.
For further further potentially paying for their bonuses.
<unk> this year. Thank you.
I'll be happy to say that 1 of Anthony Good morning, Yeah, we paid out $3.5 million at the end of Q1.
2 of our hourly store and DC associates.
And we'd had a very strong quarter and we wanted to recognize the contributions of everybody across the company, who participated and driving that great outcomes. So we were very happy to have the opportunity to do that at equated to a.
$100 wherever reality of associate it's pretty much in the 150 for store managers and assistant store managers.
Basically so going forward, we will continue to look at the approach.
US of doing things like that we are certainly always grateful to have the opportunity to do that end to reward everybody across the entire team.
Got it thank you.
Thanks Anthony.
Thank you. Our next question today is coming from Jason Haas from Bank of America at your line is that of life.
Good morning, and thanks for taking my question. So Bruce since you've joined you've made a lot of changes to the stores a lot of improvements. You've also brought envoy help which is at higher quality brands. So my question is do you feel like youre, bringing in the new customer maybe of higher earning customer sales.
The change that you've made us really just capturing more wallet share with your existing customer base.
Hey, Thanks, Jason Yeah, I do think that when I first started out we thought our customer was maybe just lower income in the aging.
With us, but our customers very strong good day is actually the middle class Americans Superwoman upper forty's, she's not aging and as we sell more furniture like broyhill, she's actually those types of customers are younger.
We do and we have doubled down on the the fact that she is all about the hunt the bargain at the end of the treasurer and those of the things we're leaning into I will also say that with the with.
With the addition of some of the operation of Northstar strategy of Who's done like the law, which focuses on now of life's moments of newness.
We're seeing greater traction with customers shopping that.
And then coming back for more on that side of it as an upscale of assortment.
And an innovation lab for us like you saw with the with the with the apparel broyhill. So proud of what we've done with broyhill as well, Brian just going back for some of the highlights to us.
On the 25 million in Q1 at 60% of what we did for the full year in 2020, 224% growth. So that's well on its way to being a 1 billion dollar brands and it really brings in a nice customer that then shops for the entire store and those customers are coming back and shopping more often I think our pantry optimization has really focused.
On the entertainment and the fund rather than mature and and.
And our E com business just makes it really easy I mean, just highlighting at once again doing $95 million in sales in Q1 is more than we did in all of the FY 2019.
So it's really interesting to see how the customer shifting we're now up to $21.4 million rewards customers active buyer, which at the 12% growth year over year.
Transactions with the rewards customers are up 23% versus last year Q1, we're feeling great about our net promoter score is increasing for the highest level and so I think overall, we're getting a better customer of more loyal customer that shops us more frequently and theres loving the the improved freshness of the assortment for the merchants the I'm just putting together.
Thanks, that's great to hear and then a question for for Jonathan.
The some more updated color on.
Cost of framework of of margin framework for that for that for the year. So I guess my question is I'm trying to parse out what's what's really changed here.
At some other retailers have talked about.
At some extra cost pressures both of which you mentioned and also labor costs, but it sounds like you're also making some investments in SG&A. So I'm just trying to parse out in terms of the guidance.
What's really changed in terms of how much of the external pressures versus how much of it is the best.
Back in the business.
Hey, Jason Yeah. So let me break that answer into 2 parts around gross margin and SG&A. So we said on the prior call of the gross margin rate for the year would be slightly down for the full year versus 2020, and we're saying it's going to be a little more down now and more close to the way we were in 2019, so roughly flat on a 2 year basis. However, we did do a little bit better than the.
Q1 than we guided to so what are you seeing in tobacco the areas of the incremental freight pressure has grown relative to what we thought a year ago, we were able to more than offset that in Q1 through lower markdowns of low promotions in particular, but as we look out for the balance of the here, we see a greater impact when we did the last.
So that's what's causing us to take our gross margin rate guidance down just just the notch on SG&A.
Taken our overall expense guidance for the year from down to the last year to slightly up now which is what we're seeing and as you've seen in Q1, we were up fairly significantly in Q1. So as we look out of the balance of the year, we expect <unk> to be kind of relatively flat for the full balance of of a year. So what we saw at <unk>.
Q1 was we had we haven't yet lapped the sale and leaseback, which was a fairly significant impact in Q1 as we get the June we will of lap that so that's kind of out of the model in terms of the year over year change.
You also had significantly higher bonus expense in Q1 this year, given our strong performance in <unk>.
How that plays into the formula for the year that cause a significant increase in bonus expense to be booked in Q1.
For the higher proportion of the bonus expense to be booked in Q1 of them a year ago and then we also had the the <unk>.
The the spot cash bonuses to our as we talked about a moment ago and then we also had equity compensation expenses higher because 1 of our awards were granted for accounting purposes all of our.
Performance share awards of the stock price was.
Much higher than it had been a year ago suddenly so that's causing a lot of incremental expense.
The noncash equity compensation line. So that's some of the effects and then obviously we were up against Covid expenses in 2020, which continued to some degree of at a lower level and then we had some normal flex expense related to higher sales in Q1, although we feel very good about how we'll control that was so I think that's the way it was real.
Driven at as Q1.
The relative to what we previously thought of and some of that equity comp expense continuing to to.
The roll through the year as part of the biggest drivers so it's not a dramatic increase.
We talked about some of the other things we are continuing to invest and they've moved up a little bit since.
Since our last call, particularly around the for deployments centers, where we have some more of a 'twenty 1 expense than we were.
We're projecting of quota quarter go, but I think that the the other main call outs for the SG&A piece.
Got it that's really helpful. Thank you.
My pleasure. Thank you.
Thank you as a reminder of that star 1 to be placed at the question queue. Our next question today is coming from Brad Thomas from Keybanc capital markets. Your line is that what.
Hi, Good morning, Bruce and Jonathan Congrats on the great start for the year here.
Just wanted to follow up on some of the power of questions around margins and I was wondering if you could share your thoughts on on some of the medium and longer term.
The opportunities of headwinds as you think about gross margin.
On the 1 hand, it would come off of the period that I think retailers within the less promotional which may have been a tailwind for you on the other end clearly the furniture business and broyhill.
Because it could be some real nice driver screen as they continue to grow in your mix. So I'm just curious at how youre thinking about the gross margin opportunity longer term.
Yeah, I'll be happy to kick off on that 1 Brad I think we see it's a great question, because we see some significant potential levels going forward, which may have a little bit of an impact in 'twenty, 1, but we think of likely to be more significant over time from 1 of those is.
The around new tools around promo.
Pricing markdown optimization that we were planning to get going on in the next quarter or 2 and we think can be the significant lever and make us much more scientific of around that the space planning tools, we have referenced in the in the prepared remarks will also help us from a margin standpoint, as well as hope helping with the top line so that the new tools.
The new processes, we're rolling out of the ship should be helpful. A mixture of point, we would expect to get a.
The benefit from as we continue to mix more towards higher margin categories, and we continue to think of this opportunity and shrink overtime we are at.
The programme now focused very heavily on a higher shrink stores and how we get those down.
2.
Close to the company average and if you just tackle the top 50 to 100 stores alone.
Pretty significant shrink benefit there so with so we're rolling out new tools and taken hold us around that too.
We're already starting to yield the very nice return and we'll be rolling out more extensively in 2022. So yeah. We definitely believe there are margin drivers going forward and other.
The 1 to add would be our relationships with our suppliers and continuing to work collaboratively with our suppliers to manage cost effectively. So we think there are a series of you.
Tell us will have going forward and then eventually as well we expect the freight headwinds will start to turn around and could become a tailwind at some point in 2022.
Okay, and if I could ask the follow up on food and consumables, yeah, clearly an important traffic driving category for us.
All of it.
Do you know transactions for customers that are looking for furniture can you talk of it more about about what exactly the food consumable strategy.
We look forward and how you can.
The improvement.
You know going forward.
Yes, thanks, Brad and food and consumables like we like we mentioned last year, we really rolled out our pantry optimization initiative, which was to accentuate the entertainment food and food and take space away from some of the staples like the canvas MUZO when we're having multiple.
Staples, where were just at <unk>.
Best of competitive so our food and entertainment tie.
Type of items are items that she really come from shops us for and we're seeing nice traction in those items, and then giving up more space for consumables everyday low prices in that area of allowing her to shop further down the list on the homosexuals when the chemicals. There. So what we are seeing us over the 2 year stack, we're seeing nice performance.
Of our pantry optimization as she basically comes to us shops for at least in pantry items, maybe complete your trip at another store some of.
Of the refrigerated foods.
The foods, but what we what we saw was our opportunity.
2 to basically address of the.
Fun shopping trip.
Trip, rather than the chore, yes, where we can compete better and we're seeing nice traction.
Great. Thank you so much.
Got it.
Thank you for the next question today is coming from Karen short from Barclays. Your line is that of life.
Hey, guys. Good morning. This is actually we're not all of us onto on for Karen Thanks for taking my questions.
So just first I just was wondering if you could talk a little bit more about how youre thinking about that low double digit comp decline guidance into Q, obviously, a lot of moving parts.
At the stimulation month to month, just a lot going on but maybe maybe you can help us by framing the guide relative to what the actual comp has been thus far in May just maybe actually give us that may number on the 2 year basis.
So we can compare that to that 20% incorporated in guidance.
Yeah, we're not at all with.
Good morning, and I'll be happy to tell you that so yeah, we don't typically give us specific quarter to date commentary, but.
As we said in the prepared remarks made us off to a good start and we are running ahead of what we're guiding to for the full quarter, but we do expect there to be some moderation in the 2 year trend.
For the quarter.
Given what we're up against from a month by month standpoint, the last year. So we feel good about where are we at a day for.
The quarter I think if you tried at the <unk>.
Struck at a little bit of it's clearly important to look at the at both the 2 year at a 1 year basis.
On the 2 year basis again, we talked about that at around 20%. The 2 year stack home, which we feel really good about.
If you go back to Q1, we talked at our overall combo.
The 11, 3 we think about half of that was driven by our internal initiatives.
All of the ones, we've talked about earlier on in the prepared remarks with the balance being the net effect of stimulus and the unemployment benefits and at what was being less promotional year over year.
So I think the important point for US is the stimulus of the unemployment will play its way out over time, what we are.
Really focused on us around the underlying core trend of our business and we feel really good about with us Ben.
Yes.
When all of the stimulus you faded out of view, we all focus is on continuing to sustain comps below our historic run rate.
We're optimistic that we are accomplishing that when you pull out the the.
Stimulus and other effects of day and that will be able to sustain that going forward.
Okay, Great that's helpful.
And then can you just give us an update with respect to e-commerce profitability.
How youre thinking about that as the business continues to scale and maybe talk about the impact of your newer offerings like into the card and pickup et cetera, and then.
Also the impact from from some of the fulfillment and supply chain initiatives.
I'll take that Jonathan you can ask for more color at <unk>.
First off thanks for asking of our ecommerce team's just done a fabulous job $95 million of sales in Q1, plus 30% of as we mentioned that's 5 times, what we did in Q1 of 2019 and more sales in Q1 than we did in all of 2019. So in terms of profitability. We remain about 2 thirds of that piece.
Business being buy online pick up in store Curbside service, which is quite profitable at pretty much.
Have no shipping expenses is on par with with our store.
Margin of few of our profitability at the same day service at NTT current pickup of ours is our next profit what we do pay a FC for that which at which decreases the profitability of slightly but it's still quite profitable and as we go to our delivery from store which is.
Which is the 2 day delivering us and you heard us talk about the stock for 47 ship from stores for delivery from the stores at 55 now.
And second quarter that is still profitable, but at a less rate than the same day and instead of carton pick up deliveries, we're seeing nice growth at our key our key focus as we grow our E comm business and really making it simple and easy for our customers shop us.
What's the do it in a productive profitable manner, we see that continuing.
<unk> right now is on removing more friction in the transactions back at.
It comes with the Apple and Google pay and there's more of the lap that will come later.
Now moving to online chat SMS text messages.
All of these things are helping us achieve the highest ever conversion rate.
Ever had which is just shy of 1% now and we still believe this is the channel that will do $1 billion and do it productively and profitably as the go forward. So we'll continue to add more and more skus extending the aisle.
The good news is that she comes to the E. Commerce traffic is very strong and in fact.
Cause some categories. We've struggled in the first quarter just to have the inventory productivity.
Availability and were now leaning into that the catch up so we feel pretty good about actually feel very good about where our e-commerce is growing.
And us as an omnichannel retailer in total.
Great. Thanks for the color best of luck.
You got it.
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Yeah.
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