Q3 2021 Big Lots Inc Earnings Call
Okay.
Ladies and gentlemen, good morning, and welcome to the Big lots third quarter Conference call.
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A question and answer session will follow the prepared remarks.
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As a reminder, this conference is being recorded.
On the call today are Bruce Thorn, 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 this call involve risks and uncertainties that are subject to the company's safe Harbor provisions as stated in the Companys press release and SEC filings.
And the actual results can differ materially from those described in the forward looking statements.
The company would like to also point out that where 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.
The company's third quarter earnings release and related financial information are available at big lots, dotcom or slash corporate or such Investor relations.
Also on the website is an investor presentation, highlighting the key themes from this call.
I will now turn the call over to Bruce Thorn, President and CEO of Big lots. Mr. Thorne. Please go ahead.
Good morning, everyone and thank you for joining us Jonathan and I will briefly cover our Q3 performance and Q4 outlook. This morning, but I want to spend most of our time talking about the huge opportunities. We see ahead for the big lots of business in 'twenty two and beyond.
Simply put we have growing confidence that our strategies across merchandising productivity real estate growth and E Commerce put us at a transformational moment for the company, we see a clear path to growing our business by several billion dollars over the coming years, our board of directors that gives us confidence and yesterday authorized an incremental 250.
Share repurchase program.
Underscoring our collective belief in big losses positive growth story, and our continued commitment to returning value to our shareholders.
Turning now to our third quarter, we were pleased to deliver results in line with guidance, despite incremental supply chain disruptions compared to our beginning of quarter view as ever. This was only made possible by the unstinting efforts of our 35000, plus associates and I want to start by thanking them all forgiving there Big every day.
In discussing our results and outlook, we will continue to reference comparisons to 2019 as generally being the most relevant given the abnormal impacts of COVID-19 on our business in 2020.
On a two year basis Q3 comparable sales increased 12%, while declining 5% to 2020 total sales increased over 14% versus 2019 with 210 basis points of favorability from our net new and relocated stores.
The two year growth in sales reflects the strength and residents of our operation North Star strategies as stimulus has faded as a factor in our results.
Our loss per share our 14th.
Was within our guidance range and while we were subject to the continuing macro pressures of which I am certain you are all aware, including supply chain disruption inflation and labor constraints, we were able to contain these for the quarter.
Sales for the quarter benefited from growth in basket, driven by AUR expansion across each category and positive mix effects as we've penetrated deeper into furniture and seasonal we saw.
Saw strong positive two year comps in furniture seasonal soft home hard home and apparel electronics and other as expected consumables experienced single digit two year growth and food was down mid single digits due largely to a strategic reduction in square footage in conjunction with our pantry optimization reset last fall.
Furniture delivered another very strong quarter with two year comps up low double digits seasonal though was the quarter highlight with comps over 30% on a two year basis with lawn and garden in Halloween and harvest all doing very well, we feel very good about the fourth quarter and even with some delayed receipts, we anticipate high sell through.
Of our holiday merchandise that will translate to a strong seasonal comp for the quarter.
Turning to marketing we are thrilled with the continued rollout of our be a big generic brand campaign that started in spring as a reminder, this campaign is grounded in extensive consumer insights around why customers love to shop us She sees us as the home of the hot for exceptional bargains and surprising treasures as.
As we turn to the fourth quarter for a holiday Big generic campaign, featuring Eric's Stone Street and Molly Shannon, we are receiving excellent feedback that the ads are attention grabbing likable and driving intention to shop.
You can look forward to great things from this campaign, featuring not only superstars, but more importantly unique gifts and decor and always incredible value that campaign, coupled with our rewards program is resonating.
Rewards active members were up over 9% versus Q3 last year now with $22 1 million members still boasting a five year CAGR of 10%.
In Q3 rewards members accounted for 64% of transactions and 76% of sales both up 400 basis points to same quarter last year.
Before turning to our discussion of our strategic opportunities I would like to provide a few brief comments on Q4.
First and foremost our absolute focus for Q4 has been to position ourselves appropriately with inventory to drive sales and deliver an excellent holiday for our customers and the quarter has started off strongly with positive 10% two year comps for fiscal November last week, we had the best Thanksgiving and Black Friday week in the Companys history.
Barry.
While manufacturing and supply chain pressures, one packed both our top and bottom lines. In Q4, we are aggressively managing through them as we continue to grow the business. This includes partnering closely with our manufacturing and transportation partners strategically prioritizing receipts, creating new capacity with our four distribution centers and our DC bypass.
Pass program and ensuring we're competitive in our recruiting and retaining DC associates. In addition, we have taken pricing actions and will continue to do so in response to volatile supply chain costs, while continuing to deliver great value for our customers.
And we have line of sight to ending the fourth quarter with a strong inventory position to meet spring demand and deliver strong Q1 sales and we know that we left sales on the table in each of the past two years looks.
Looking a bit further out it is too soon to give specific guidance for 2020 two as a whole, but while we face a big hurdle with the lapping of stimulus in Q1, and Q2 of this year, which we estimate was worth about five points of comp on a full year basis and will result in negative comps in Q1 of 'twenty two we expect to deliver overall sales growth in 'twenty two.
On top of two years that greatly exceeded any prior sales level, we achieved as a company.
That growth in 'twenty, two and beyond will be achieved through the three key operation North Star drivers, we have referenced on prior calls specifically growth in same store sales driven by our many successful merchandising initiatives accelerated growth in our store footprint and growth driven by our rapidly scaling e-commerce and Omnichannel operation.
Yeah.
I would like to take a moment on each of these to talk about the opportunity we see ahead of us.
Strategically building, our merchandise assortment to maximize productivity will be a key driver of our growth in the coming year and beyond this will be driven by discrete in store programs, new tools and by leveraging our rapidly growing owned brands.
Starting with our next generation furniture sales team. This initiative is rolling out presently and is making a strong positive sales and margin impact driving close to a 15% lift to the furniture business in stores, where it has rolled out.
This program is currently in 100 stores and will initially scale to around 500 stores in 22, driving at least a point of comp on an annualized basis for the entire company.
Turning to seasonal big lots has been known for winning at holiday and in lawn and garden in the spring and summer with our outdoor seasonal patio sets because evils in pools. However, we have a major white space opportunity for elevating our seasonal assortment, increasing our newness and transitioning between seasonal moments with greater efficiency and effectiveness.
We will show a big for not just holiday, but for Valentine's day, St. Patrick's day fourth of July and other seasonally relevant moments winning the seasons throughout the year. Additionally.
Additionally, as I will discuss in more detail shortly furniture and seasonal volume will both be supported by the expanded DC network capacity that we are developing to more efficiently flow bulky merchandise to our stores.
Moving to our own brands in particular, broyhill and real living we see major upside both with furniture and beyond.
Most importantly, we have proven that they resonate well with our customer broyhill on real living each have the potential to achieve $1 billion in annual sales across all home categories and are well on their way towards that both north of a half a billion dollars in sales on a year to date basis through Q3.
Broyhill accounted for over $160 million in Q3 sales up close to 50% over the same quarter in 2020, approximately 40% of sales came through our home decor seasonal and hard lines.
Similarly, real living continues on its strong trajectory almost doubling versus Q3 of last year and delivering over $60 million of growth during the quarter across multiple product categories.
As we referenced last quarter, our increased investment in apparel has helped us bring in new customers and is well on its way to making apparel significant category for us.
As the first graduate category from the Lotte, we have built apparel in a scrappy way to be over a $200 million program. This year with a clear opportunity for more than doubling sales in the years to come.
Customers are giving us credit for our expanded offering as we better organize our offering in store around casual loungewear. Additionally, while we will not become an apparel store, we have recruited seasoned leadership to bring focus to this productivity enhancing opportunity.
Additional space productivity enhancements have been made through our lot in queue line strategies. These two strategies now in over 1300 stores have maintained their accretive sales impact and we plan to complete our rollout in 'twenty two.
In addition to these strategies new initiatives such as lots under five dollar offering represents a further opportunity to drive higher productivity.
Our lots under $5, which we'll roll out in the middle of 2022 will create a value destination for our customers' anchored on surprise and delight treasure hunt products priced at $1 $3 $5.
Assortment will be seasonally relevant and have impulse items to create excitement for newness as she increases visit frequency. This is just an example of the ongoing category innovation that will be an integral part of our business going forward.
Supported by new tools and processes and an outstanding team. We are confident that our merchandise related strategies will delivered tremendous growth in productivity.
On our last few calls we have discussed our white space opportunity for net new stores in 2020. One we are reversing the historical trend of relatively stagnant store count and will increase our net new store count by over 20 stores in 2022, we expect that figure to be over 50, while sales volumes will range, depending on square footage and market.
Six we expect at least $120 million of annualized impact from next year's net new stores and that they will deliver four wall EBITDA margins of 10% or greater.
Turning to ecommerce our year to date sales growth is around 300% versus 2019, and we have a clear line of sight to e-commerce, becoming a billion dollar business over the next few years.
Our approach to date has been to replicate the friendliness of our in store interactions online by removing friction points and allowing a customer to purchase where she wants how she wants with what tender she wishes and to have that product with filled through the channel that she prefers since the initial rollout of both of US in 2019, we now provide curbside pickup.
Ship from store capabilities, and same day delivery via answer to cart and pick up to support holiday. We increased the number of stores providing ship from store fulfillment to 65, we continue to see over 60% of our demand fulfilled through these new capabilities. Additionally.
Additionally, joining our lineup of Apple and Google pay we expanded our mobile wallet capabilities. This past quarter with both Paypal and Paypal pay and for our first buy now pay later solution in the coming year, we expect to unveil further capabilities and additional buy now pay later choices mobile payment now represents 35% of.
Total online transactions.
As I mentioned, even though our ecommerce channel has grown from close to nothing in 2017 to well over $350 million expected in 2021 huge opportunity remains to further upgrade user experience and drive conversion, where we have already made great strides.
Enhanced user search and checkout experience enhanced inventory visibility and access further extending our aisle and accelerating supplier direct fulfillment will all fueled this growth perhaps more importantly over the past few years, we have worked to expand our online choices to better reflect our in store assortment selections.
What was less than 20% of our assortment a few years ago is now approximately two thirds of our over 30000 choices.
I would now like to pivot to some of the key enablers of our future success.
Earlier this year and are specifically during last quarters call, we discussed our need to invest in our supply chain through the rollout of our Ford bulk product and furniture distribution centers or F. D. CS and our transportation management system. Our legacy distribution Center network was designed for a $5 billion pick and pack brick and mortar business model.
As we have grown substantially over the past two years lean further into bulk furniture and seasonal businesses and significantly grown our E. Commerce business, we have outgrown our capacity we are addressing this by distorting processing and logistics for bulk goods out of our five legacy distribution centers into our new FTC network, enabling us.
To better leverage the capacity of our original regional Dcs that were designed for carton flow. In addition, our transportation management system that launched last year and completed rollout. This year, we'll optimize how are more complex and higher capacity network functions.
In 2022, we plan to launch two additional FTE sees further relieving pressure on our regional D CS and enhancing our ability to process bulk product. Additionally, through our strong relationships. We have the ability to open pop up bypass D. CS to further assist regional Dcs and handling seasonal receipt peaks.
Finally in 2022 we will begin work on our centralized repack facility at our Columbus distribution center to handle individual unit pick products further enhancing our regional distribution center throughput as.
As we optimize our store footprint and enhance inventory availability, we need to ensure consistent customer experience across our stores.
Another key enabler as we referenced on the prior quarter's call is a project refresh program to upgrade approximately 800 stores, which were not included in the 2017 to 2020 store of the future program complete.
Completing this project will create a more consistent consumer experience, while better representing the big lots brand. It will harmonize internal processes. As we are currently catering to too many differently formatted or condition stores at an average cost of a little over $100000 per store far below our store of the future convergence.
These stores are getting new exterior signage interior repainting and floor repair a new vestibule experience remodel bathrooms and interior wall graphics project refreshes underway with around 50 stores being completed in the fourth quarter and we are in the process of finalizing our plans for a more extensive rollout in 2022.
To summarize I'm greatly enthused about not just where we can be in a few years, but in what we are achieving everyday to make that reality curves.
Our growth drivers led by an ambitious driven and highly talented team will continue to materially scale our business in the coming years, our mission at Big lots is to help her live big and save lots and we'll do that by being her best destination home discount store chockfull of exceptional value and surprising and fund products.
I'll wrap in a delightful and easy shopping experience.
As I turn the discussion over to Jonathan I do wish all of you a wonderful and meaningful holiday season be safe stay healthy and stopped into your local big lots for your gifts decorations special treats and supplies Jonathan.
Thank you Bruce and good morning, everyone as Bruce referenced our third quarter performance was in line with our guidance to a sustained double digit two year comps despite supply chain challenges and the exploration of stimulus benefits reflects a tremendous effort across our entire team and I would like to thank every single one of them what they bring to big lots every day.
The summary of our financial results for the third quarter can be found on page eight of our investor presentation.
Net sales for the quarter with 1.336 billion three 1% decrease compared to 1.378 billion a year ago, but up 14, 4% to the third quarter of 2019.
The decline versus 2020 was driven by a comparable sales decrease of four 7% in line with our negative negative mid single digit comp guidance two year comps were 12, 3% and was strongest in August remained healthy throughout the quarter driven by basket size.
Our third quarter net loss was $4 3 million compared to $29 9 million net income in Q3 of 2020 and the loss of $7 million in 2019.
<unk> for the quarter was a loss of 14 cents in the middle of our guidance range.
As a reminder, we reported diluted EPS of <unk> 76 cents last year.
Supply chain impacts across gross margin and SG&A accounted for around 60 cents of the year over year reduction in EPS.
The gross margin rate for Q3 was 38, 9% down 160 basis points from last year's third quarter rate and 80 basis points below 2019, slightly outperforming our guidance.
The 38.9% rate reflects the freight headwinds that we've discussed partially offset by pricing increases.
Total expenses for the quarter, including depreciation were $523 million approved $515 million last year.
This was also in line with our expectations coming into the quarter and driven by incremental expense investments in labor and in our food distribution centers.
While expenses Deleveraged versus last year, they leveraged 90 basis points to two <unk> to.
Q3, 2019, driven primarily by efficiencies in store expenses, partially offset by supply chain expense, including the costs of our new food distribution centers and expense from the June 'twenty, 'twenty sale and leaseback of our regional Dcs.
Operating margin for the quarter was a loss of 0.3% compared to a profit of three 1% in 2020 and a loss of 0.4% in 2019.
Interest expense for the quarter was $2 3 million down from $2 5 million in the third quarter last year and down from $5 4 million in Q3 2019.
In September we announced the successful amendment and extension of our unsecured revolving credit facility.
The amendment provides more favorable pricing and covenants.
With this new facility, we anticipate saving a minimum of $850000 in interest and fees on an annualized basis and substantially more if we draw on the revolver.
The income tax rate in the third quarter was a benefit of 29, 3% compared to last year's expense rate of 24, 1% with the rate change primarily driven by the impact of the disallowed deduction for executive compensation and the favorable impact of a discrete item in the prior year.
On a full year basis, we expect our tax rate to be slightly favorable to 2020.
Total ending inventory was up 17% to last year of one point to seven 7 billion and up 14% to 2019 somewhat ahead of our beginning of quarter guidance.
The increase was probably is was a purposeful heavy up of inventory to support holiday to Wright said furniture, Deb and to support incremental inventory for the Lotte and apparel.
The increase was this guidance reflects our successful efforts to get more inventory receipts into supply chain ahead of holiday as well as increased unit costs due to inbound freight.
During the third quarter, we opened nine new stores and closed three stores. We ended Q3 with 1424 stores and total selling square footage of $32 5 million.
Capital expenditures for the quarter were 46 million compared to 34 million last year.
Depreciation expense in the third quarter was $35 9 million or $3 million to the same period last year.
We ended the quarter with $70 6 million of cash and cash equivalents and no long term debt.
As a reminder of the end of Q3 2020, we had 548 million of cash and cash equivalents and $39 million of long term debt.
The year over year reduction in cash levels reflects the deployment of proceeds from the sale of a sale and leaseback of it about distribution centers towards share repurchases and the payment of taxes on the gain on the sale and leaseback.
We repurchased 2 million shares during the quarter for $97 million at an average cost per share of $47 43, since completing our August 2020 $500 million authorization.
Under that authorization, we have repurchased 935 million shares in total at an average cost of $53.49 per share including Commission.
We announced today that our board of directors has approved a new share repurchase authorization, providing for the repurchase of up to $250 million of our cone chairs.
The authorization is effective December 8th and is open ended.
Also our board of directors declared a quarterly cash dividend for the third quarter fiscal 2021 of 30 cents per common share.
This dividend is payable on December 29, 2021 to shareholders of record as of the close of business on December 15th 2021.
As Bruce commented earlier, we see ongoing capital return is a key component of long term shareholder value creation.
Turning to guidance key highlights can be found on pages 18, and 19 of our investor presentation.
So the fourth quarter, we expect diluted earnings per share in the range of $2.05 to $2.20 compared to $2.59 of earnings diluted share for the fourth quarter of $2022.39 in Q4 2019.
For the full year, we now expect diluted earnings per share in the range of $5 70 to $5 80 and 85 since.
The 27 reduction from our prior guidance range is entirely accounted for by additional supply chain SG&A expense, which I will come back to in a moment.
The guidance does not incorporate any share repurchases, we may may complete in the quarter.
The fourth quarter guidance is based on slightly positive comparable sales better than what we previously expected due to stronger underlying trends and improved inventory availability.
In addition, Q4 sales will see a benefit of approximately 180 basis points from net new and relocated stores.
On a two year basis, we expect comps to be up high single digits.
For the full year, we expect a negative low single digit comp versus 2020, which will again equate to double digit comps on a two year basis.
We expect the fourth quarter gross margin rate to be down around 150 basis points from last year.
And also Q4 2019.
This is somewhat more erosion than estimated in our prior guidance impacted by the higher freight as we have successfully worked to move inventory through the supply chain to drive sales.
For the full year, we expect gross margin rate to be down approximately 70 basis points versus 2019, and approximately 120 basis points versus 2020.
At this point, we are not counting on any early abatement of freight pressures, but we do expect this over time.
In the meantime, without factoring in any freight driven tailwind, we expect to see 2022 margin improvement driven by taking additional price increases where appropriate and reflecting a benefit from new pricing and promotion capabilities as well as from the deployment of new planning tools.
We expect Q4 expense expense dollars to be up by a mid single digit percentage of the last year driven by incremental expense investments in store and DC labor, our food distribution centers and depreciation expense.
Relative to our prior full year guidance fourth quarter distribution and transportation expenses have increased by around $14 million.
This includes $4 million related to additional receipt volume during the quarter. In addition to the $6 million, we called out on our last earnings call.
Further includes $4 million of higher initial costs related to our new F. T six $2 million related to fuel and domestic carrier rates and $2 million related to additional actions. We've taken on D. C. Labor rates, we expect most of these expenses to be transitory.
Oh timing related.
For the full year SG&A expense those will be up around 3% to 2020, driven by the full year impact of the sale and leaseback of our distribution centers additional supply chain expenses, including investments in our new F. T sees other strategic investments.
Equity compensation expense.
We now expect inventory to end Q4 of approximately 20% to 2019.
This reflects strong progress in rebuilding our inventories to support spring sales and as noted above will result in some additional receipt protein processing expense in Q4.
As a reminder, we began both 2020 and 2021 with depleted inventories.
In addition, we are intentionally pulled forward seasonal inventory receipts.
We now expect 2021 capital expenditures to be between 170, and $180 million, including around 55 store openings of which around 'twenty will be relocations.
The reduction from prior quarters guidance, and Capex is driven by timing shifts, including the move of our new centralized repack spend out of 2021.
Our capital projection includes approximately 50 project refresh schools in 2021.
On a net basis, we expect total store count to grow by around 20 stores in 2021, we expect to further accelerate store count in 2022 and beyond.
As Bruce described we.
We are increasingly confident that our long term top line opportunity and we expect to achieve to achieve a record new sales in 2022, driven by a net new store openings. In addition, as noted a moment ago, we expect to turn the corner on gross margin rate for 2022.
We will have some additional growth related expenses in 2022 related to new stores, our FTC rollout and other strategic investments and we will also face inflationary wage and other pressures.
To help fund these investments we will maintain our focus on achieving structural reductions in our expenses.
On the excellent progress we've already made under operation North Star.
We are excited by the opportunities ahead of us in 'twenty two and beyond.
We look forward to providing more color on this as we enter 2022.
I'll now turn the call back over to our moderator. So that we can begin to address your questions. Thank you.
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Our first question today is coming from Greg <unk> with Wolfe Research. Your line is now live.
Good morning. This is Spencer hanus on for Greg can you guys talk a little bit more about the supply chain challenges, you're seeing and if there was any improvement in the fourth quarter, because it looks like inventory per store. It ticked up at least in <unk> and then how are you thinking about the cadence of sales in <unk> are we seeing a repeat of last year, where consumers shopped a lot earlier they tried.
To get out ahead of any supply chain issues.
Hi, Spencer this is Bruce I'll start off and Jonathan can add a little bit more.
Asia sourcing has been difficult for us and I think almost everyone trying to do business in Q3 the factory lockouts.
<unk> and still through November factories are around 60% staffed and so it's continuing into fourth quarter. We don't expect that factory capacity to get back to normal conditions until Q1 Q2 of 2022 and that's resulted obviously in heavy congestion at our domestic.
<unk>.
And higher freight cost as we can as we fight with everyone else for containers and ships, but despite this congestion and everything else I think the team the big lots team has done a very good job ensuring most of our holiday if not all his gotten on ships and through the domestic ports and into our Dcs and into stores. We've worked very hard on mitigating.
The issues upfront by prioritizing holiday working on alternate ports and routing systems buying available domestic product, great buyouts or Closeouts. If you will examples in toys and furniture, we've stood up a DC bypass network to quickly expedite product from our domestic ports to our stores and.
Our two FTC that we opened up in Pennsylvania, and Georgia are also doing a great job, helping us get the product through so we expect these delays to continue into Q1 and Q2 I think it's going to get we believe it's going to get a little bit better in terms of the delays from four to six or eight weeks future.
Three weeks and we're planning accordingly, as you can tell with our inventory buy up in fourth quarter. It puts us in a very strong position to start the new year in a big way in terms of customer trends.
Tell you what she's out their revenge shopping.
We mentioned in our opening remarks.
Our fourth quarter is off to a very good start the largest Thanksgiving and Black Friday week in our company history, and 10% two year comps through November the customers' healthy.
Seeing her.
Shopping earlier in fact, we we our research told US about 50% of Americans plan to shop earlier than Thanksgiving. This year for the holiday season, and we're seeing all of that come true. We also see the customer spending.
Spending more online year over year, and it's up about 10% from what our research tells us and we're seeing that as well, but definitely this revenge shopping trend getting out there and making this the best holiday in the last couple of years is top of mind, we expect her spend to be up from the research, we've seen up 25% and holiday season.
So we have done a nice job preparing our stores getting them in stock our store associates are just doing an incredible job on loading the trucks getting the Doc to the shelf and then engaging our customers better than ever before our net promoter score is at an all time high we would expect that it'll be elongated season as we have more.
That we did last year, which will help us.
Meet her needs all the way up to Christmas day, whether it's online or in store pickup and then beyond if she has some clearance product because she'd like to buy up so we're feeling good about how we're positioned.
Got it that's really helpful.
And then as you guys shift towards towards growing the store base again with 50, new stores more than 50, new stores next year could you just walk through some of the return metrics, you're targeting maybe payback period sales volume and an end.
I think in the presentation deck, you've talked about a 10% four wall EBITDA margin, how does that compare to the overall store base.
Yes, so it depends.
Jumping on that.
So yeah, we're talking about 50, plus net new stores. So the gross openings will be a little bit higher than that but thats the figure by which we expect to grow our net store count yes.
Yes.
Referenced in the script and in the presentation, we expect temps integrator for all Ebitdas.
That's pretty close to where we are for the fleet as a whole.
And then the IRR as we approve new stores, we want them to be.
North of 20, ideally mid twenties for those stores and then the payback period, there's a little bit depending on who is funding the build out and so on but yes.
We plan to give more color around all of that going forward, because we recognize that as new stores become ever more important part of the mix, we want to make sure people really understand those economics that we'll be we'll be sharing more on that as we go forward.
Great. Thank you so much.
Thank you Spencer.
Our next question comes from Joe Feldman with Telsey Advisory Group Your line is live.
Hey, guys. Thanks for taking my questions.
Wanted to ask you. Thank you for giving some of his color on 2022 and of course going to ask for more detail on it but yeah.
You made a quick comment I think in the presentation that.
First quarter, you're probably still going to see a slightly negative comp because of the stimulus comparison so.
I guess my question is more around do you think it's the story should like we'll see sales build through the year or is it more more like a tougher first half strong second half recovery or how should we maybe think about the flow of the year.
Yeah, Hey, Joe I'll be happy to tell you that so what we're saying is that for the full year of 'twenty one.
Stimulus gave us about a five point boost that we don't expect to repeat in 2022. So that's a full year metric most of that impact will be in Q1 and some in Q2. So so the the hurdle we have to get over it.
You can see that in our two year comps from this year Q1 was plus 23, then we went to plus 14, plus 12, so as we lap that plus 23, two year comp in Q1, that's going to be the most challenging comp of the year. Then we expect the compares to get more favorable as we move through the year.
Thank you and then.
Just kind of curious you mentioned the strong Thanksgiving week.
What what was selling presumably seasonal product or is it just the fact that.
You know you guys actually when you buy furniture at your stores you get the item on the floor. So you.
And I know furniture, so tight so you actually have inventory.
To satisfy demand. So maybe you could just share a little more color about what we're selling in the latest week.
Yes, I'll take that Joe.
I mentioned investing accordingly and <unk>.
Back Friday week that we've ever had and as you mentioned, having the product made all the difference and I think we just planned very well upfront to ensure we prioritize those shipments all the way back from summer time to ensure that we have that product in stores and it took a task force to do that.
We're really pleased with the result, the other thing that.
That you mentioned was seasonal our seasonal business was very strong we leaned in and bought up into the seasonal business. We ran short last year and this year, we beef that up Jack and his team beef that up and it's great product a product we have out there is probably the best product I've seen big lots carry and I would put it up against anybody not anybody else.
This product is very very good product and she is eating it up I think the other thing is is that across the store we had.
Much better in a.
Doorbuster deals if you were if you are if.
If you will for example.
We had a 50% closeout in toys that we 50% off on closeout toys that we ran during black Friday, which our customers just loved and.
<unk> had traffic driving 42 inch Tvs for sale at a $150 and that was in the stores watching them just fly out the door along with baskets that were just full with all seasonal shopping carts all seasonal products. So I think we just hit it right and we're learning to win holiday and I think we're very pleased with our results.
Got it thanks, guys and good luck with the quarter. Thank you. Thank you Joe.
Our next question comes from the line of Jason Haas with Bank of America. Your line is now live.
Hey, good morning, and thanks for taking my questions. So my first is on just the supply chain investments that youre, making them. Appreciate the good color there I'm curious where should we look for the benefits of those is this more an efficient like an efficiency type thing, where we should see.
Some cost savings from those or is it more about.
Getting better product availability, you said that there should be some sort of comp benefit associated.
Or is it a mix of both but just curious how that should impact the financials.
Hey, Jason Good morning, I'll try to unpack that a little bit it's a combination to your point so.
Part of it is just we've had some.
Immense stress on the system in 2021 from the huge volume of receipts, we were trying to bring in and the labor costs and so on.
So we incurred some incremental expense related to that as we look forward. The the sort of structural investment is in the FTC's.
Well they do bring additional expense what we fully expect them to do is to support faster flow through to our stores, which should drive sales over time and to some degree. We're also just catching up with the fact that we had a supply chain that was built through a $5 billion plus business and without clearly well above that and planning to go much further.
Above that so we need to catch up a little bit with some of the investment, but there should be a payoff in terms of those sales will get by having a more efficient supply chain and certainly as we lapped 2021, we expect to be in a much better place in one of the benefits. We will have from what we're doing in Q4, bringing in receipts early will be to alleviate some.
Of that pressure on the supply chain and distribution and logistics and in 2022.
Got it that's helpful and then as a follow up I'm curious maybe for Jonathan If you could talk about how you're thinking about SG&A growth.
But for next year.
Yeah, It's a little early for us to give specific guidance on that Jason.
Do have some investments, including the FTC's. If we just talked about we're also going to be lapping as we just referenced some expenses that won't recur in 2022.
We're also continuing to go after structural expense opportunities. We think there is still significant opportunity there on top of whats already a very significant number we've taken out since 2019.
It doesn't mean incremental.
Incremental investments, we'd like to spend more in marketing, we're really thrilled by what we're seeing with it would be a big in that campaign and we'd like to invest more in that so it is as usual at this point in the cycle, there's various things were kind of.
Trading off and figuring out what we need to prioritize to both invest in the things that are going to be most critical to driving the business, but also making sure we're delivering solid bottom line.
Got it thank you for taking those questions.
Thank you. Our next question is from Brad Thomas with Keybanc. Your line is live.
Hi, good morning, Thanks for taking my question.
Bruce I was hoping you could just touch a little bit more on the food and consumable strategy and how youre thinking about.
Continuing to refine that those categories as we move into <unk>.
'twenty two.
Hey, good morning, Brad Thank you.
Food and consumables as you know last year, we rolled out our pantry optimization program, which reduced the foods section down to more snacks treats salty sugary product entertainment food, which fits more into our home discount.
Casual leisure lifestyle type of offering and so while we didn't see a positive two year comp in food. This last quarter, what I will tell you the reduced square footage is what caused that but we were very pleased with the productivity. We saw on sales per square foot and footage and thats up over the last two years. So we're pleased with how that's performing.
We're going to continue to refine that we see opportunity to to tighten up the assortment Jack is working with the team there to tighten up the assortment to go.
To have more narrow focus on products and solutions for food pantry entertaining entertaining not.
And not have as much redundancy, a good penetration of our big buyout as well as.
As well as in the consumables area continue to improve the productivity there reduce the redundancy have a nice assortment that caused us to be able to.
Fill her basket in terms of household needs, we see the food and consumables business as an opportunity to improve both in pricing.
And assortment and we see that as maybe not necessarily a destination trip for our customers. Our customers are more about having fun and losing themselves in our store on a treasure hunt embark in hot but more of a basket builder when they are in the store on those destination trips and so making that easier with eclectic fun food and and.
Those basic needed consumables is where we see it we did see a positive two year comp in consumables, we expect that through our pricing promotion continued improvement in the assortment and.
Continued penetration and better deals and our collective food that will continue to see our progress in these categories.
That's very helpful Bruce and Jonathan if I could ask a quick housekeeping item.
Obviously been buying back shares and I think this quarter, we don't see a fully diluted share count because the earnings came in negative how are you thinking about what the share count maybe for the fourth quarter. Just so we're all fine tuning our models properly.
I will get that number I don't have it right immediately to hand, but.
Okay.
So much and good luck this holiday.
Thanks Brent.
Thank you.
The next question comes from the line of Karen short with Barclays. Your line is live.
Hi, Good morning. This is zane on for Karen short from Barclays.
<unk>.
One on gross margin.
Gross margin outlook.
Previously I expect it to be down about 100, Bips and now that seems to have gotten a little worse.
I think you said down 120 quarter full year.
Even though you now expect to be at Julio had been 120 basis points.
There's 150 that you called out last quarter.
Can you explain what's driving the incremental gross margin pressure as well as the improved outlook.
Yes.
Happy to jump in on that so we very consciously as you can see from what we reported earlier made an effort to get more receipts into the supply chain into our Dcs to our stores.
As for Q4, but also to be prepared for Q1, and you see that showing up in that in the inventory number of the end of Q4 going up significantly from what we saw and we are thrilled about that we were very happy with where we are and where we're positioned.
For Q4, but also equally importantly coming into into the spring of 2022. So that's been a big focus in order to do that we had to take some incremental freight charges just to work that through but we think that was a trade off well worth.
Making further down the P&L as we talked about we are incurring some additional processing costs, which is natural when we're flowing more receipts in the quarter than we anticipated as.
Some.
Fairly significant incremental expense for that which is essentially a pull forward of <unk>.
That we wouldn't otherwise have.
Would otherwise have occurred in 2022, so we're kind of getting that behind us. So so that's on yesterday based on the gross margin piece is primarily is just really working hard to get those receipts in and incurring additional freight to do that.
Was there a second budget questions Dan.
Yeah I was just wondering what was I think on the last call you expected.
It could be a full year headwind of 150 basis points and release I think you called out 120.
That was the second part of your question, but beyond that question.
The EBIT margin when we compare your business to 2019 levels.
In the first three quarters.
Even with the pressure you're seeing today it was up in every quarter in the first three quarters versus 2019, and it wasn't even actually up in <unk> versus <unk>.
<unk> 21 versus 2019, but it seems like you're expecting a meaningful reversal of pads in <unk> based on the implied outlook I get to about.
280 bps, so deleverage versus for 2019, just wanted to ask if you can help us understand what's driving that reversal.
Versus two years ago from <unk> into <unk>.
Yes.
A couple of things flowing into it first of all our comp is a little lower on a two year basis in Q4 than Q3, and that's partly because of you even with everything we've done to improve the supply chain and flow of inventory through we're still missing some sales in Q4 because of some of the manufacturing issues. We previously talked about again.
We've taken some incremental gross margin rate hits in Q4, we've also taken those incremental expenses, we talked about a $14 million of incremental SG&A in Q4.
Most of which was proactive to get us there.
Equally positioned with our FTC and also to process more receipts during the quarter.
So they would probably be the biggest call outs.
And then just.
Beyond that I guess were obviously looking out towards 22.
And you're managing the business appropriately and being well positioned coming into the year.
Thank you very much and good luck this quarter.
Uh huh.
Our next question is coming from the line of Peter Keith Piper Sandler Your line is live.
Hey, good morning at the Saudi printer on for Peter Thanks for taking my questions.
First just wondering with the acceleration of store openings next year.
Could you give any early color on the cadence of openings for the year should it be fairly even by quarter or more.
I don't have a backup.
Yeah, Hey, Bob it's curious to the back half I think of the net 50 would probably be 15 or so in the first half from 35 or so in tobacco.
Okay. Thank you Jonathan.
Just one other separately one of your competitors noted they think broader price inflation dynamics in the economy or leading the budget conscious consumer to pull back on some of their discretionary spend I'm wondering if you're seeing any signs that this might be the case in your business or have any expectation that it might've been near future.
Yes, I'll take that one we're not seeing a pullback in consumer spending or customer spending as a result of the inflation right now.
We are actually seeing.
The price increases that we've put through as a result of covering our cost that we're getting from input product and freight.
He is being absorbed by the customer she wants the product, especially going into fourth quarter. She knows that she needs a shop early we're not seeing that resistance. Most of our pricing has been well it's been across all categories and we've been doing it year to date and we play a little bit of a catch up because we want to make sure we're anchoring entry price points along.
With the price leaders out there and we don't want to anticipate or or lose that value position with our customers before we actually understand the true cost and as we implement these increases that we're realizing that she is taking them I think the most elastic category would be food because of the competitive nature.
Of that but even that is not that high of a resistance. So we're expecting to be able to continue to pass along these price increases and I think thats. Some of the Opex in Q4 is as our pricing matches, our input costs and freight that will play out going into Q1, and Q2 of 2022 and more stable and expanding.
With all the other.
Initiatives, we have going on but we think the customers healthy.
And she's out there shopping.
Yeah.
Okay. Thanks I appreciate it.
Got it.
Thank you.
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