Q1 2024 Big Lots Inc Earnings Call

Alvin Caezar Concepcion: Good morning, this is Alvin Concepcion, Vice President of Investor Relations at Big Lots. Welcome to the Big Lots First Quarter Conference. Currently, all lines are in a listen-only mode.

Good morning. This is Alvin Concepcion, Vice President of Investor Relations at Big lots.

Welcome to the Big lots first quarter conference call.

Speaker Change: Currently all lines are in a listen only mode. If you require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded on the call with me today are Bruce Thorn, President and Chief Executive Officer, and Jonathan Ramsden Executive Vice President Chief financial and administrative officer.

Alvin Caezar Concepcion: If you require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. On the call with me today are Bruce Thorn, President and Chief Executive Officer, and Jonathan Ramsden, Executive Vice President, Chief Financial and Administrative Officer. Before starting today's call, we would like to remind you that any forward-looking statements made on the call involve risk and uncertainties that are subject to the company's safe harbor provisions, as stated in the company's press release and SEC filings, and that actual results can differ materially from those described in the forward-looking statements.

Speaker Change: Before starting today's call, we would like to remind you that any forward looking statements made on the call involve risk and uncertainties that are subject to the company's safe Harbor provisions as stated in the Companys press release, and SEC filings and that actual results can differ materially from those described in the forward looking statements. We would also like to point out that commentary today is for.

Speaker Change: On an adjusted non-GAAP results.

Speaker Change: Reconciliations of GAAP to non-GAAP adjusted results are available in today's press release.

Speaker Change: Our first quarter earnings release presentation, and financial information is available at big lots Dot com slash corporate slash investors of <unk>.

Speaker Change: <unk> and answer session will follow the prepared remarks, I will now turn the call over to Bruce.

Alvin Caezar Concepcion: We would also like to point out that 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 first quarter earnings release, presentation, and financial information is available at biglots.com slash corporate slash investment. A question and answer session will follow the prepared remarks. I will now turn the call over to Bruce.

Bruce K. Thorn: Good morning, everyone, and thank you for joining us. While we've made substantial progress in improving our business operations in Q1, we missed our sales goal due largely to a continued pullback in consumer spending by our core customers, particularly on high-ticket discretionary items. The consumer environment softened in the first quarter, as both consumer confidence and sentiment declined since January, due in part to concerns about inflation, unemployment, and interest rates. Also, personal saving rates have been declining, while credit card balances have grown, indicating the pressure our core consumers are under as they try to manage their strained budgets.

Speaker Change: Morning, everyone and thank you for joining us.

Bruce K. Thorn: We've made substantial progress on improving our business operations in Q1, we missed our sales goal due largely to continued pullback in consumer spending are core customers, particularly in high ticket discretionary items.

Bruce K. Thorn: The consumer environment softened in the first quarter as both consumer confidence and sentiment has declined since January due in part to concerns about inflation unemployment and interest rates.

Bruce K. Thorn: Also personal savings rates have been declining while credit card balances have grown indicating the pressure our core consumers under as they try to manage their strained budgets.

Bruce K. Thorn: We remain focused on managing through the current economic cycle by controlling the controllable. Our operational initiatives to offer a large assortment of new and exciting extreme bargains, cut costs, and increase productivity exceeded our targets in Q1. This enabled us to improve consumer perceptions about our brand and the value we offer and to deliver a year-over-year improvement in gross margin rate and operating expenses, despite the significant sales pressure this quarter. We're also pleased with our actions to preserve and enhance liquidity in Q1, which included aggressive efforts to manage OpEx, CapEx, and inventory and the execution of a new 200 million dollar term loan facility, which provides us with significant additional financial flexibility.

Bruce K. Thorn: We remain focused on managing through the current economic cycle on controlling the controllable.

Bruce K. Thorn: Our operational initiatives to offer a large assortment of new and exciting extreme bargains cut cost and increased productivity exceeded our targets in Q1.

Bruce K. Thorn: This enabled us to improve consumer perceptions about our brand and the value we offer and to deliver a year over year improvement in gross margin rate and operating expenses. Despite the significant sales pressure this quarter.

Bruce K. Thorn: We're also pleased with our actions to preserve and enhance liquidity in Q1, which included aggressive efforts to manage opex capex and inventory and the execution of a new $200 million term loan facility, which provides us with significant additional financial flexibility as we move forward, we're taking aggressive actions to drive positive comp sales.

Bruce K. Thorn: As we move forward, we're taking aggressive actions to drive positive comp sales growth later in the year and grow the year over year gross margin rate through the end of this year and into next by substantially progressing our five key actions. To sum up, the current financial performance does not yet reflect the stronger business model that we've created through our five key actions, but we expect the fruits of those efforts to become more apparent in the second half of the year.

Bruce K. Thorn: Later in the year and grow the year over year gross margin rate through the end of this year and into next I substantially progressing our five key actions to sum it up the current financial performance does not yet reflect the stronger business model that we've created through our five key actions, but we expect the fruits of those efforts to become more apparent.

Bruce K. Thorn: In the back half of the year.

Bruce K. Thorn: As a reminder, the five key actions are to own bargains, to communicate unmistakable value, to increase store relevance, to win customers for life with our omni-channel efforts, and to drive productivity. We remain confident that the five key actions are putting us on the right path to turn around our business, and we still have a lot of work ahead of us.

Bruce K. Thorn: As a reminder, the five P actions are to own bargains to communicate unmistakable value to increase store relevance to win customers for life with our omni channel efforts and to drive productivity.

Bruce K. Thorn: We remain confident that the five key actions are putting us on the right path to turnaround our business, though we still have a lot of work ahead of us.

Bruce K. Thorn: We need to continue to elevate our brand relevance to drive more traffic, so we are moving quickly to achieve 75% bargain penetration and, within that, substantially grow our extreme bargain penetration to 50% by year end. Extreme bargains provide significant savings over price leaders and are working, as we've seen the sales trends shift favorably in several categories along with a better gross margin outcome. And we're making it easier for our customers to know we've got these deals through better signage, ads, and store layout, along with more effective digital campaigns that are more relevant and inspiring to customers.

Bruce K. Thorn: We need to continue to elevate our brand relevance to drive more traffic. So we're moving quickly to achieve 75% bargain penetration and within that substantially grow our extreme bargain penetration to 50% by year end.

Bruce K. Thorn: Extreme bargains provide significant savings over price leaders and are working as we've seen the sales trend shift favorably in several categories, along with a better gross margin outcome.

Bruce K. Thorn: And we're making it easier for our customers to know we've got these deals through better signage and in store layout, along with more effective digital campaigns that are more relevant and inspiring to customers.

Bruce K. Thorn: Although we've seen solid results from our extreme bargain offers, our overall results have been muted due to our high assortment mix in the home furnishing categories, where even though we've held share, there has been a significant consumer pullback in big ticket items, particularly within the furniture and patio furniture categories. While most of our store base has healthy unit economics, with around 70% of our stores generating positive four-wall adjusted EBITDA, there are still a significant number of underperforming stores that we are working hard to address. A key part of that work is to realize most of the 200 plus million in bottom line opportunities through Project Springboard this year. And on that front, we are ahead of schedule.

Bruce K. Thorn: Although we have seen solid results out of our extreme bargain offers our overall results have been muted due to our high assortment mix in the home furnishing categories, where even though we've held share there has been a significant consumer pullback in big ticket items, particularly within the furniture in patio furniture categories.

While most of our store base is healthy unit economics with around 70% of our stores generating positive four wall. Adjusted EBITDA. There are still a significant number of underperforming stores that we are working hard to address.

Bruce K. Thorn: A key part of that work is to realize most of the 200 plus million of Bottomline opportunities through project springboard. This year and on that front. We are ahead of schedule.

Bruce K. Thorn: In fact, we are raising our targets to $185 million of cumulative benefits by year-end versus $175 million previously. Through the five key actions, which Project Springboard is a significant part of, and under the leadership of Kristen Cox, our Chief Stores Officer, who joined in December, we're implementing a simplified store operation strategy focused on investing in talent, operational excellence, and improving the customer experience, among other things. Now on to the first quarter results and outlook. There are three key messages I want to convey this morning.

Bruce K. Thorn: In fact, we are raising our targets to $185 million of accumulative benefits by year end versus 175 million previously.

Bruce K. Thorn: Through the five key actions, which project springboard is a significant part of and under the leadership of Kristen Cox, Our Chief stores Officer, who joined in December we're implementing a simplified store operation strategy focused on investing in talent operational excellence and improving the customer experience among other things.

Bruce K. Thorn: Now onto the first quarter results and outlook.

Bruce K. Thorn: First, our Q1 comp sales trends of down 9.9 missed our guidance of down mid-single digit. The Monthly Trends coincided with volatility and consumer sentiment, where February was the weakest month of the quarter, with a rebound in March and a deceleration in April. To a smaller extent, weather challenges also unfavorably impacted our sales in February and April. However, in Q2 to date, comp sales have improved sequentially relative to Q1. Our gross margin rate in Q1 improved 190 basis points year-over-year primarily due to lower markdowns as well as benefits from Project Springboard efforts, but slightly missed our guidance range due to the sales miss. Adjusted SG&A was down 4% versus last year compared with our guidance of a low single-digit decline.

Bruce K. Thorn: There are three key messages I want to convey this morning.

Bruce K. Thorn: First our Q1 comp sales trends of down 9.9, Mr guidance of down mid single digits. The monthly trends coincided with volatility and consumer sentiment where February was the weakest month of the quarter with a rebound in March and a deceleration in April to a smaller extent weather challenges also unfavorably in.

Bruce K. Thorn: Packed in our sales in February and April and Q2 to date comp sales have improved sequentially sequentially relative to Q1, our gross margin rate in Q1 improved 190 basis points year over year, primarily due to lower markdowns as well as benefits from project springboard efforts, but slightly missed our guidance range due to the sales Miss.

Bruce K. Thorn: Adjusted SG&A was down 4% versus last year, compared with our guidance of down low single digits.

Bruce K. Thorn: Second, we continue to expect quarterly year-over-year gross margin improvements to continue in 2024 and see a path to positive comparable sales in the latter part of the year. These improvements will be driven by our five key actions, which will continue to gain momentum, including realizing most of the 200 million plus of bottom line opportunities through Project Springboard and growing our penetration of bargains and extreme bargains. We exceeded our Q1 targets for Project Springboard, so we're off to a great start this year and have found an opportunity to realize more savings in 2024 than we originally planned.

Bruce K. Thorn: Second we continue to expect quarterly year over year gross margin improvements to continue in 'twenty 'twenty, four and see a path to positive comparable sales in the latter part of the year.

Bruce K. Thorn: These improvements will be driven by our five key actions, which will continue to gain momentum, including realizing most of the 200 million plus a bottomline opportunities through project springboard and growing our penetration of bargains and extreme bargains weak.

Bruce K. Thorn: We exceeded our Q1 targets for project springboard. So we're off to a great start this year and have found opportunity realize more savings in 'twenty 'twenty four than we originally planned in regards to extreme bargains, we exceeded our penetration goal in Q1, and we're accelerating our extreme value sourcing efforts further by Resourcing the business.

Bruce K. Thorn: In regards to extreme bargains, we exceeded our penetration goal in Q1, and we're accelerating our extreme value sourcing efforts further by resourcing the business with the right talent and an improved infrastructure. In fact, we launched Asia-based buying offices in April, which will enhance our competitiveness to source extreme bargains, as well as reduce costs by millions of dollars annually. By bringing the operation in-house, we're moving quickly and aggressively to solidify our position as America's discount home. Third, our efforts to aggressively manage costs, inventory capital expenditures, and increase our borrowing capacity have enabled us to grow liquidity through a challenging period. Our net liquidity at the end of the first quarter was $289 million, higher than $254 million in the fourth quarter.

Bruce K. Thorn: With the right talent and an improved infrastructure in fact, we launched Asia based buying offices in April which will enhance our competitiveness to source extreme bargains as well as reduced cost by millions of dollars annually, bringing the operation in house.

Bruce K. Thorn: We're moving quickly and aggressively to solidify our position as America's discount home store.

Bruce K. Thorn: Third our efforts to aggressively manage cost inventory capital expenditures and increased our borrowing capacity have enabled us to grow liquidity through a challenging period.

Bruce K. Thorn: Our net liquidity at the end of the first quarter was $299 million higher than the $254 million in the fourth quarter.

Bruce K. Thorn: While the soft Q1 performance resulted in a net use of cash in the quarter, we boosted liquidity with increased borrowing capacity of up to $200 million in April with a new first-in, last-out, FILO term loan facility, which is incremental to the borrowing capacity within the $900 million asset-based revolving loan. While near-term conditions have been challenging, we're not slowing down on making progress to transform our business. I'd like now to circle back to highlight some of the recent progress we've made on the five key actions which will drive momentum in the business.

While the soft Q1 performance resulted in net use of cash in the quarter, we boosted liquidity with increased borrowing capacity of up to $200 million in April with a new first in last out five O term loan facility, which is incremental to the borrowing capacity within that 900 million dollar asset based revolving loan facility.

Bruce K. Thorn: While near term conditions have been challenging we're not slowing down I'm, making progress to transform our business.

Bruce K. Thorn: Now the circle back to highlight some of the recent progress we've made on the five T actions, which will drive momentum in the business.

Bruce K. Thorn: As it relates to our first key action, Owning Bargains, our mix of bargains, which are closed-out items, opportunistic buys, and other sourced products, where we believe we have a significant comparable price advantage, was nearly two-thirds of sales in Q1. So we're well on our way to achieving our goal of 75% by year end.

As it relates to our first key action owning bargains are mixed of bargains, which our closeout items opportunistic buys and other sourced products where are we where we believe we have a significant comparable price advantage was nearly two thirds of sales in Q1, So we're well on our way to getting to achieving our goal of 75% by year end with.

Bruce K. Thorn: Within that, we offered an expanded assortment of extreme bargains, which represented about 28% of our sales in Q1, and should be 50% by year end. We achieved this by procuring products from over-invenoried and distressed retailers and vendors through new factory direct sourcing partners and exclusive distributors. Our extreme bargain pipeline is growing, and we have sourced the largest amount of extreme bargain closeouts since I've been with the company. As I mentioned earlier, Extreme Bargains are already favorably changing the sales trajectory of several departments while also being margin accretive. In fact, the Hartzong Extreme Bargain deal resulted in bringing the toy department from negative sales in Q4 to plus plus 5% year-to-date with a 900 basis point improvement in gross margin relative to Q4.

Bruce K. Thorn: In that we offered an expanded assortment of extreme bargains, which represented about 28% of our sales in Q1 and should be 50% by year end.

Bruce K. Thorn: We achieved this by procuring products from over inventoried and distressed retailers and vendors through new factory direct sourcing partners and exclusive distributors.

Bruce K. Thorn: Our extreme bargain pipeline is growing and we have sourced the largest amount of extreme bargain closeout since I've been with the company.

Bruce K. Thorn: As I mentioned earlier extreme bargains are already favorably changing the sales trajectory of several departments. While also being margin accretive in fact, the heart song extreme bargain deal resulted in bringing the toy department for negative sales in Q4, two up plus 5% year to date with a 900 basis point.

Bruce K. Thorn: Improvement in gross margin relative to Q4 that.

Bruce K. Thorn: That sales momentum has carried into May with a plus 25% increase in sales and demonstrates that introducing newness at an extreme bargain can bring positive transformation while simultaneously building margin. We've seen transactions improve with extreme bargains as well, such as in the grocery category, where the skew count has grown and where we're leveraging more everyday low pricing in our assortment. For example, in April, we partnered with the national branded beverage vendor to launch an everyday low price program priced at or better than price leaders, which has driven positive comp growth and beverage sales since then.

That sales momentum has carried into may with the plus 25% increase in sales and demonstrates that introducing newness at an extreme bargain can can bring positive transformation, while simultaneously building margin lease.

Bruce K. Thorn: We've seen transactions improve with extreme bargains as well such as in the grocery category, where the SKU count has grown and where we're leveraging more everyday low pricing in our assortment.

Bruce K. Thorn: For example in April we partner with the National branded beverage vendor to launch an everyday low price program priced at or better than price leaders, which has driven positive comp growth in beverages. Since then.

Bruce K. Thorn: The categories with the highest improvement in extreme bargain penetration rates, such as grocery and toys, had an average of 1100 basis point increase in transaction comp trend in Q1, relative to the fall of 2023 and a decreed margin rate. As we move forward, we'll be growing our extreme value penetration with a focus on newness and excitement at exceptional prices while reducing our non-differentiated never out assortment with the aim of making our assortment mix more productive and relevant to customers.

Bruce K. Thorn: The categories with the highest improvement in extreme bargain penetration rates, such as grocery and toys had an average of 1100 basis point increase in transaction comp trend in Q1 relative to the fall of 2023, and an accretive margin rates.

Bruce K. Thorn: As we move forward, we'll be growing our extreme value penetration with a focus on newness and excitement at exceptional prices, while reducing our non differentiated never out assortment with the aim of making our assortment mix more productive and relevant to customers. Our merchants are laser focused on more breath unless step along with more.

Bruce K. Thorn: Our merchants are laser-focused on more breadth and less depth, along with more consumer solutions in our assortment. For example, we're rapidly growing our extreme bargain SKU count in core grocery and personal care categories, with greater breadth and less depth to create more reasons for customers to visit often and take advantage of deals while supplies last. Less depth in these categories and more choices allows us to curate a more robust extreme bargain treasure hunt experience.

Bruce K. Thorn: Tumor solutions in our assortment for example, we're rapidly growing our extreme bargain SKU count and core grocery and personal care categories with greater breadth and less step to create more reasons for customers to frequently visit and take advantage of deals while supplies last les stepped in these categories and more.

Bruce K. Thorn: <unk> allows us to curate a more robust extreme bargain treasure hunt experience.

Bruce K. Thorn: We're also providing more consumer solutions by adding new categories of business, such as home air filters, portable air conditioners, automotive, fitness, and stationary. In March, we made a series of organizational updates to our merchandising team designed to help the team act quickly, operate more efficiently, and win in the fast-paced off-price retail environment with a full pipeline of extreme bargains. Our head merchants include Seth Marks, who is focused on food and consumables, as well as the front end, Kevin Kiel, who focuses on soft home and hard home, and Shelly Trosklair, who focuses on furniture.

Bruce K. Thorn: We're also providing more consumer solutions by adding new categories of business, such as home air filters portable air conditioners, automotive fitness and stationery.

Bruce K. Thorn: In March we made a series of organizational updates to our merchandising team designed to help the team act quickly operate more efficiently and win in the fast paced off price retail environment with a full pipeline of extreme bargains. Our head merchants include Seth marks who is focused on food and consumables as well as the front end.

Bruce K. Thorn: Kevin Keil, who focuses on soft home and hard home and Shelly troughs, Claire who focuses on furniture.

Bruce K. Thorn: Decor, Lawn and Garden, Seasonal, All are deeply focused on expanding extreme bargains in their respective categories and acquiring and developing deep closeout experience throughout the ranks. With a highly focused extreme value merchant team that will continue to flex our open-to-buy, we are quickly expanding our relationship with vendors with a bigger seat at the closeout table. As it relates to our second key action, communicating unmistakable value, our recent marketing efforts continue to show promise. For example, our net customer value perception score improved again in Q1 across all key trip types.

Bruce K. Thorn: Core lawn and garden and seasonal.

Bruce K. Thorn: All are deeply focused on expanding extreme bargains in their respective categories and acquiring and developing deep closeout experience throughout the ranks with a highly focused extreme value merchant team that will continue to flex our open to buy we are quickly expanding our relationship with vendors with a bigger seat at the closeout table.

Bruce K. Thorn: As it relates to our second key action communicating unmistakable value. Our recent marketing efforts continue to show promise.

Bruce K. Thorn: Our net customer value perception score improved again in Q1 across all key trip types. This was a result of our increased penetration in extreme bargains and displaying these items more prominently in our end caps and drive aisle and campaigns such as your deal your day and a friends and family event select category coupons and bargains.

Bruce K. Thorn: This was a result of our increased penetration in extreme bargains and displaying these items more prominently in our end caps and drive aisle and campaigns such as your deal your day and a friends and family event, select category coupons, and bargains to brag about. Also, our top of mind brand awareness and the perception of us as a discount home store among consumers increased sequentially in April versus January. These are positive steps to getting more traffic and new customers in our stores. Our marketing efforts are focused on driving value perception with bargains and extreme bargains. A key component of our extreme bargains are closeout deals that we call big buyouts.

Bruce K. Thorn: Brag about also are top of mind brand awareness and perception as a discount home store among consumers increase sequentially in April versus January these are positive steps to getting more traffic and new customers in our stores.

Bruce K. Thorn: Our marketing efforts are focused on driving value perception with bargains and extreme bargains, a key component of our extreme bargains of closeout deals that we call big buyouts.

Bruce K. Thorn: We've increased big buyout signage at the store level, launched new video and digital ads, as well as new in-store announcements. We're also increasing dedicated big buyout emails, which are our highest engagement emails in 2024 to date. We've also been partnering with social media influencers to highlight monthly bargains and buyouts through authentic and inspiring bargain shopping content, which has led to a higher engagement rate. We are continuing to leverage promotional tools and processes to help us eliminate non-productive promotions and target our promotional spend where we will see the greatest return. And we expect to continue to accelerate this program into 2024.

Bruce K. Thorn: We've increased big buyout signage at the store level launch new video and digital ads as well as new in store announcements. We're also increasing dedicated big buyout emails, which are our highest engagement emails in 'twenty 'twenty four today.

Bruce K. Thorn: We've also been partnering with social media Influencers to highlight monthly bargains and buyouts through authentic and inspiring bargain shopping content, which has led to a higher engagement rate.

Bruce K. Thorn: We are continuing to leverage promotional tools and processes to help us eliminate nonproductive promotions and target our promotional spend where we will see the greatest return and we expect to continue to accelerate this program into 'twenty 'twenty four.

Bruce K. Thorn: As it relates to our third key action, we continue to focus on increasing store relevance. We are increasingly featuring extreme bargains in the queue line, drive aisle, and end caps. And as we hit critical mass on extreme bargain penetration, we will accelerate our progress in improving consumer value perception and traffic. For example, in the queue line, we have been moving fast to showcase our great bargain items with price points under $10 with increased flexibility on the featured items at the store level. Some recent examples include pet bargains, closeout candy, and water bottles. We estimate this to be a $25 million annual opportunity for sales.

Bruce K. Thorn: As it relates to our third key action, we continue to focus on increasing store relevance. We are increasingly featuring extreme bargains in the queue line drive aisle and Endcap and as we hit critical mass on extreme bargain penetration, we will accelerate our progress and improving consumer value perception and traffic for example in the queue line, we have been moving.

Bruce K. Thorn: Fastest showcase a great bargain items with price points under $10 with increased flexibility on the featured items at the store level. Some recent examples include pet bargains closeout candy and water bottles, we estimate this to be a $25 million annual opportunity in sales.

Bruce K. Thorn: Our ongoing efforts to flex our assortment to capture customer demand are showing encouraging results. As a reminder, we've been flexing our assortment by increasing inventory in top-performing categories in stores, as well as taking inventory out of bottom-performing categories in stores, creating white space opportunities, and optimizing our space with more productive SKUs. We've had recent success with a new statistical model for allocation in our seasonal category, which our test indicates may be a $20 million annual gross margin benefit. We'll be implementing this model in other categories in Q2.

Bruce K. Thorn: Our ongoing efforts to flex our assortment to capture customer demand are showing encouraging results. As a reminder, we've been flexing our assortment by increasing inventory in top performing categories in stores as well as taking inventory out of bottom performing categories in stores, creating white space opportunities and optimizing our space with more productive skus.

Bruce K. Thorn: We've had recent success with the new statistical model for allocation in our seasonal category, which are test indicates may be a 20 million dollar annual gross margin benefit.

Bruce K. Thorn: We will be implementing this model in other categories in Q2.

Bruce K. Thorn: It also means introducing more bargains, newness, and trend-right products in our assortment across all categories. New products as a share of total SKUs. We're up year over year in Q1.

Bruce K. Thorn: It also means introducing more bargains newness and trend right products in our assortment across all categories new products as a share of total skus were up year over year in Q1.

Bruce K. Thorn: This is helping as Newness at a great bargain helps drive improvement in our upholstery furniture business. As we continue to increase extreme bargain penetration across the enterprise, this will simultaneously increase newness within the assortment. As it relates to our fourth key action, we've been improving the customer experience to help us win customers for life. Our goal is to win customers for life by attracting them, retaining them, and growing their shopping frequency with. Our omni-channel platform is a crucial enabler for this, and it differentiates us from our off-price peers. As I mentioned earlier, we're implementing a simplified store operations strategy. As for the talent component, we're focused on investing in training and coaching.

Bruce K. Thorn: This is helping us newness at a great bargain helped drive improvement in our upholstery furniture business as we continue to increase extreme bargain penetration across the enterprise. This will simultaneously increased newness within the assortments.

Bruce K. Thorn: As it relates to our fourth key action, we've been improving the customer experience to help us win customers for life.

Bruce K. Thorn: Our goal is to win customers for life by attracting them retaining them and growing their shopping frequency with us our omnichannel platform is a crucial enabler for this and it differentiates us from our off price peers as I mentioned earlier, we're implementing a simplified store operation strategy in regards to the talent component we're focused on.

Bruce K. Thorn: Investing in training and coaching will improve operational excellence by getting new products to the floor faster optimizing schedules and tightening processes.

Bruce K. Thorn: We'll improve operational excellence by getting new products to the floor faster, optimizing schedules, and tightening processes. We are emphasizing a customer-first culture focused on building loyalty. In regards to presentation, we aim to inspire through strong merchandising and present value better. On that last note, we're also empowering stores to showcase their best value and most seasonally relevant products at the front of the store, and we can now be extremely agile in our presentation.

Bruce K. Thorn: We are emphasizing a customer first culture focused on building loyalty in regards to presentation, we aimed inspire through strong merchandising and present value better.

Bruce K. Thorn: On that last note. We're also empowering stores to showcase their best value and most seasonally relevant product at the front of the store and we can now be extremely agile in our presentations, so far our stores and customers love the new flexibility.

Bruce K. Thorn: So far, our stores and customers love the new flexibility. We're continuing to enhance the online experience and showcase extreme bargain deals through the weekly ad, big bargains, and big buyout sections heavily featured on the site. We remain focused on influencing her home shopping journey to enable customers to browse more products online, and now offer a coming soon preview in-store inventory and have started the ability to pre-order for big ticket items and furniture and seasonal at the end of Q2.

Bruce K. Thorn: We're continuing to enhance the online experience and showcasing extreme bargain deals through the week Leann Big bargains and Big buyouts sections heavily featured on the site. We remain focused on influencing her home shopping journey through enabling customers to browse more products online and now offer a coming soon preview in store inventory.

Bruce K. Thorn: <unk> and have started the ability to preorder for core big ticket items in furniture and seasonal at the end of Q2.

Bruce K. Thorn: These four actions will be important traffic drivers in the future. The fifth key action is to drive productivity through structural cost reductions, inventory turns, and CapEx efficiency. As I mentioned, we're well on track with these efforts, and Jonathan will speak more about what we are doing to drive productivity in a few minutes.

Bruce K. Thorn: These four actions will be important traffic drivers in the future.

Bruce K. Thorn: The fifth key action is to drive productivity through structural cost reductions inventory turns and capex efficiency.

Speaker Change: As I mentioned, we're well on track with these efforts and Jonathan will speak more about what we are doing to drive productivity in a few minutes.

Bruce K. Thorn: So to sum up, despite the soft consumer environment, we are gaining ground with our five key actions. Getting on the path to positive comp sales and growing our gross margin rate every quarter is of critical importance to us, and we are moving quickly and aggressively to make it happen. I will now make a few comments on specific categories of performance in the quarter. Seasonal comps decelerated relative to Q4 on a year-over-year basis as consumers continue to pull back on high-ticket discretionary items such as patio furniture and gazebos.

So to sum it up despite the soft consumer environment, we are gaining ground with our five key actions.

Getting on the path to positive comp sales and growing our gross margin rate every quarter is of critical importance to us and we are moving quickly and aggressively to make it happen.

Bruce K. Thorn: Customers responded positively to decor items in the seasonal assortment, such as planters, plant stands, tools, and other gardening accessories. While big-ticket patio furniture and gazebos continue to underperform in Q2, we are taking aggressive promotional action on select underperforming products and will deliver margin rate improvement versus last year for the spring season. Our furniture and soft home categories also decelerated sequentially relative to Q4 on a year-over-year basis for the same reason

Speaker Change: And now I will make a few comments on specific category performance in the quarter.

Speaker Change: Seasonal comps decelerated relative to Q4 on a year over year basis as consumers continued to pull back on high ticket discretionary items, such as patio furniture and gazebo.

Speaker Change: Customers responded positively to the core items and the seasonal assortments, such as planters plants dance tools and other gardening accessories, while big ticket patio furniture and go see those continue to underperform in Q2, we are taking aggressive promotional action on select underperforming products and will deliver margin rate improve.

Speaker Change: <unk> versus last year for the spring season.

Speaker Change: Our furniture and soft home categories also decelerated sequentially relative to Q4 on a year over year basis for the same reason, we are seeing sequential comp improvement in the furniture business in Q2, driven by upholstery case goods to core of mattresses.

Bruce K. Thorn: We are seeing sequential comp improvement in the furniture business in Q2, driven by upholstery, case goods, decor, and mattresses. Hard Home accelerated relative to Q4 on a year-over-year basis due to increased bargain offerings. The Hartsong closeout deal drove a significant improvement in toy sales, providing a nearly 50% increase in April, and new category sales in swing sets, trampolines, sandboxes, and outdoor games and activities.

Speaker Change: Hard home accelerated relative to Q4 on a year over year basis due to increased bargain offerings. The hearthstone closeout deal drove a significant improvement in toy sales, providing nearly 50% increase in April and new category sales and swing sets trampolines sandbox as an outdoor games and activities.

Bruce K. Thorn: We're also seeing early Q2 sales benefit from newness in automotive, home maintenance, tabletop, and food prep. Therefore, we expect comp sales to improve in the category as 2024 progresses. In food and consumables, costs decelerated sequentially relative to Q4 on a year-over-year basis as we face fierce competition in these categories.

Speaker Change: We're also seeing early Q2 sales benefit with newness and automotive home maintenance tabletop and food prep. Therefore, we expect comp sales to improve in the category.

Speaker Change: As 'twenty 'twenty four progresses.

Speaker Change: In food and consumables comps decelerated sequentially relative to Q4 on a year over year basis as we faced fierce competition in these categories. In response, we are focused on accelerating the penetration of extreme bargains, particularly in the food category with more breadth and less step.

Bruce K. Thorn: In response, we are focused on accelerating the penetration of extreme bargains, particularly in the food category, with more breadth and less depth, which is driving significant improvements and should benefit us going forward. In Q1, we had a 150% increase in SKU count in grocery and increased our extreme value SKU count in personal care by sevenfold versus last year. For the quarter, PET was again a standout performer with positive comparable growth, which makes it now six out of the past seven quarters of growth, aided by the expansion of our assortment in the fall.

Speaker Change: Which are driving significant improvements and should benefit us going forward in Q1, we had a 150% increase in SKU count in grocery and increased our extreme value SKU counts in personal care by seven fold versus last year for the quarter was again, a standout performer with positive comp growth, which makes it now six.

Speaker Change: Out of the past seven quarters of growth aided by the expansion of our assortment in the fall.

Bruce K. Thorn: Before handing it over to Jonathan, I'd like to take a moment to once again thank our associates for working hard to drive progress on our key actions and for their hand in helping shape our more simplified and impactful store strategy. I'd also like to thank our vendors for their incredible partnership and support in helping us bring more great bargains to our customers. We look forward to seeing them at our vendor summit in July.

Jonathan E. Ramsden: Before handing it over to Jonathan I'd like to take a moment to once again, thank our associates for working hard to drive progress on our key actions and where their hand in helping shape, our more simplified and impactful store strategy I'd also like to thank our vendors for their incredible partnership and support and helping us bring more great bargains to our customers.

Jonathan E. Ramsden: We look forward to seeing them at our vendor summit in July.

Bruce K. Thorn: 2024 has started off with significant challenges, and there are still many uncertainties. We will continue to focus on controlling the controllable and pressing forward in our efforts to create a stronger and healthier business as the year progresses. I will now pass the floor to Jonathan, and I will return in a few moments to make some closing comments before taking your questions.

Jonathan E. Ramsden: 124 has started off with significant challenges and there are still many uncertainties. We will continue to focus on controlling the controllable and pressing forward in our efforts to create a stronger and healthier business as the year progresses.

Speaker Change: I will now pass it over to Jonathan and I will return in a few moments to make some closing comments before taking your questions.

Jonathan E. Ramsden: Good morning everyone. I would like to start by expressing my gratitude to the entire team here at Big Lots for their tireless efforts to improve our performance. For the first quarter, as Bruce noted, we were disappointed to miss our guidance on comp sales. Though we were off to a slower start than we expected, we continue to see a path to positive comps towards the latter part of the year and expect significant gross margin rate improvement in every quarter versus last year. As Bruce mentioned, we are making strong progress on our five key actions, particularly with regard to Project Springboard, where we have found opportunities to accelerate our efforts.

Jonathan E. Ramsden: Good morning, everyone I would like to start by expressing my gratitude to the entire team here at big lots for the unstinting efforts to improve our performance.

Jonathan E. Ramsden: The first quarter as Bruce noted, we were disappointed to Miss our guidance on comp sales.

Jonathan E. Ramsden: So we were off to a slower start than we expected we continue to see a path to positive comps towards the latter part of the year and expect significant gross margin rate improvement in every quarter versus last year.

Speaker Change: As Bruce referenced we are making strong progress on our five key actions, particularly with regard to project springboard, where we have found opportunities to accelerate our efforts.

Speaker Change: As a result, we're raising our target to $185 million in cumulative savings by the end of the year. So this is $175 million previously of which approximately $150 million will be incremental in 2024.

Jonathan E. Ramsden: As a result, we're raising our target to $185 million in cumulative savings by the end of the year, versus $175 million previously, of which approximately $150 million will be incremental in 2024. I will now provide some detail on our Q1 results, which I will discuss on an adjusted basis. Excluding impairment charges, fees related to Project Springboard, and DC closure costs. A first quarter summary can be found on page nine of our quarterly results presentation.

Speaker Change: I will now provide some detail on our Q1 results, which I will discuss on an adjusted basis, excluding impairment charges fees related to project springboard in D C closure costs.

Speaker Change: First quarter summary can be found on page nine of our quarterly results presentation.

Jonathan E. Ramsden: Comp sales were softer than we expected and more volatile over the course of the quarter. As Bruce mentioned, our trends correlated with the softness in consumer sentiment and, to a smaller extent, were unfavorably impacted by weather.

Speaker Change: Comp sales were softer than we expected a more volatile over the course of the quarter.

Bruce mentioned trends correlated with the softness in consumer sentiment and to a smaller extent will unfavorably impacted by weather.

Jonathan E. Ramsden: Q1 net sales were $1.01 billion, a 10.2% decrease compared to $1.12 billion a year ago, driven by a comparable sales decrease of 9.9%. A net reduction in the store count offset by a favorable sales shift due to the 53rd week in 2023 had an unfavorable impact of approximately 30 basis points. Our first quarter adjusted net loss was $132.3 million, resulting in an adjusted diluted loss per share for the The gross margin rate for the quarter was 36.8%, up 190 basis points from last year, with the improvement versus last year driven primarily by a reduced level of markdowns, as well as benefits from Project Springboard.

Speaker Change: Q1, net sales were one point, a 1 billion% to 10.2% decrease compared to <unk>, one 2 billion a year ago.

Speaker Change: Driven by a comparable sales decrease of nine 9%.

Speaker Change: The net reduction in store count offset by a <unk>.

Speaker Change: Favorable sales shift due to the 50 <unk> week in 2023.

Speaker Change: Unfavorable impact of approximately 30 basis points.

Speaker Change: Our first quarter adjusted net loss was $132 3 million, resulting in an adjusted diluted loss per loss per share for the quarter of $4 51 sentence.

Speaker Change: The gross margin rate for the quarter was 36, 8% up 190 basis points to last year.

Speaker Change: With the improvement versus last year, driven primarily by a reduced level of markdowns as well as benefits from project springboard.

Jonathan E. Ramsden: Turning to adjusted SG&A, total expenses for the quarter, including depreciation, were $491.8 million, down 3.6% versus $510.5 million last year. SG&A also included rent of approximately $7 million, resulting from our 2023 sale lease pact, which also had the effect of reducing depreciation by around $1 million. Our strong performance on expenses was driven across multiple line items and included benefits from Project Springboard. Adjusted operating margin for the quarter was negative 11.9%. Interest expense for the quarter was $12 million, up from $9.1 million in the first quarter last year due to higher average amounts drawn on our credit facilities and higher interest rates.

Speaker Change: Turning to adjusted SG&A total expenses for the quarter, including depreciation were 491.8 million down three 6% versus $510 5 million last year.

Speaker Change: SG&A included rent of approximately $7 million, resulting from a 2023 sale leaseback.

Speaker Change: Which also had the effect of reducing depreciation by around $1 million.

Speaker Change: Our strong performance on expenses was driven across multiple line items and include benefits from project springboard.

Speaker Change: Adjusted operating margin for the quarter was negative 11.9% <unk>.

Interest expense for the quarter was $12 million up from $9 $1 million in the first quarter last year due to higher average amounts drawn on our credit facilities and higher interest rates.

Jonathan E. Ramsden: Adjusted income tax expense for the quarter was $0.2 million. Recall that in the second quarter of 2023, we recorded a valuation allowance against deferred tax assets, resulting from the company being in a three-year cumulative loss position at the end of the quarter. As a result, going forward, we are not able to record a tax benefit related to lost carry forwards until we are in a three-year cumulative income position.

Speaker Change: Adjusted income tax expense for the quarter was 0.2 million.

Speaker Change: Recall that in the second quarter of 2023, we recorded a valuation allowance against deferred tax assets, resulting from the company being in a three year cumulative loss position at the end of the quarter.

Speaker Change: As a result going forward, we are not able to record a tax benefit related to loss carryforwards until we are in a three year cumulative income position.

Jonathan E. Ramsden: Total ending inventory cost was down 12.7% last year versus our down low teens guidance and driven by lower on hand units and average unit. We ended Q1 with 1,392 stores unchanged from Q4 and total selling square footage of 32.3 million. Sales for the quarter was $15 million compared to $17 million last year. Appreciation expense in the quarter was $32 million, down from adjusted depreciation of $36 million last year. We ended the first quarter with $44 million in cash and cash equivalents, similar to the fourth quarter. At the end of the quarter, we had $573.8 million in long-term debt versus $501.6 million a year ago.

Speaker Change: Total ending inventory at cost was down 12.7% last year versus out down low teens guidance and driven by lower on hand units and average unit cost.

Speaker Change: We ended Q1 with 1392 stores unchanged from Q4, and total selling square footage of $32 3 million.

Speaker Change: Capex for the quarter was 15 million compared to 17 million last year.

Speaker Change: Depreciation expense in the quarter was 32 million down from adjusted depreciation of $36 million last year.

Speaker Change: When we ended the first quarter with 44 million in cash and cash equivalents similar to the fourth quarter.

Speaker Change: At the end of the quarter, we had $573 8 million in long term debt was $501.6 million a year ago.

Jonathan E. Ramsden: Turning to the outlook, we expect sequential comm cells improvement in the second quarter into the negative mid to high single-digit range. With regard to gross margin, we expect our Q2 gross margin rate to improve year-over-year and to be up by at least 300 basis points, sequentially well ahead of the 190 basis points year-over-year improvement in Q1, and driven by reduced markdown activity and benefits from Project Springboard. For Q2, we expect SG&A dollars to be down low to mid single digits versus 2023.

Speaker Change: Turning to the outlook, we expect sequential comp sales improvement in the second quarter into the negative mid to high single digit range.

Speaker Change: With regard to gross margin, we expect our Q2 gross margin rate to improve year over year and to be up by at least 300 basis points sequentially well ahead of the 190 basis point year over year improvement in Q1.

Speaker Change: And driven by reduced markdown activity and benefits from project springboard.

Speaker Change: For Q2, we expect SG&A dollars to be down low to mid single digits versus 'twenty twenty-three.

Jonathan E. Ramsden: Again, this includes approximately $7 million of rent expense related to the 2023 sale lease pack, which will be partially offset by lower depreciation of around $1 million. We expect interest expense to be approximately $15 million in Q2, higher than last year due to higher average borrowings and interest rates. With regard to CapEx, we continue to expect 2024 to be in line with or somewhat below 2023, with necessary IT investments offsetting lower store openings.

Speaker Change: Again. This includes approximately $7 million of rent expense related to the 'twenty two 'twenty three sale leaseback, which will be partially offset by lower depreciation of around $1 million.

Speaker Change: We expect interest expense to be approximately $15 million in Q2 higher than last year due to higher average borrowings.

Speaker Change: Interest rates.

Speaker Change: With regard to Capex, we continue to expect 'twenty to 'twenty four to be in line with will somewhat below 20, twenty-three with necessary investments offsetting lower store openings.

Jonathan E. Ramsden: We now expect three store openings in 2024, all of which will be in the third quarter. Two of these projects were originally slated for 2023, and one is due to a relocation of a store where we are losing our lease. In general, all new store commitments remain on hold until our business situation improves.

Speaker Change: We now expect three store openings in 2024.

Speaker Change: All of which will be in the third quarter.

Two of these projects were originally slated for 'twenty two 'twenty three.

Speaker Change: One is due to a relocation of a store, where we are losing a lease.

Speaker Change: In general all new store commitments remain on hold until our business situation improves.

Jonathan E. Ramsden: We expect full-year depreciation of around $130 million, including approximately $32 million in Q2. We expect a share count of approximately 29.3 million for Q2. We expect Q2 total inventory to be down mid-single digits as we continue our aggressive approach to managing inventory levels. The inventory decline will be driven by lower units.

Speaker Change: We expect full year depreciation of around $130 million, including approximately $32 million in Q2.

Speaker Change: We expect a share count of approximately $29 3 million for Q2.

Speaker Change: We expect Q2 total inventory to be down mid single digits as we continue our aggressive approach to managing inventory levels.

Speaker Change: The inventory decline will be driven by lower units.

Jonathan E. Ramsden: Again, all of our commentary on Q2 excludes the potential impact of impairment charges and other items, including distributions and disclosure costs, gains on the sale of real estate, and related expenses and fees related to Project Springboard. I'd now like to spend a few moments providing more details on our cost reduction and productivity efforts. Overall, we are progressing ahead of plan on Project Springboard and delivered $25 million in benefits across gross margin and SG&A in Q1, on top of $35 million in the back half of 2023, which was also above our initial estimate.

Speaker Change: All of our commentary on Q2 excludes the potential impact of impairment charges and other items, including distributions and the closure costs gains on the sale of real estate and related expenses and fees related to project springboard.

Speaker Change: I'd now like to spend a few moments providing more details on our cost reduction and productivity efforts.

Speaker Change: Overall, we are progressing ahead of plan on project springboard and delivered $25 million in benefits across gross margin and SG&A in Q1 on top of $35 million in the back half of 2023.

Speaker Change: Which was also above our initial estimate.

Jonathan E. Ramsden: As noted a moment ago, we are now increasing our target to an incremental benefit of around $150 million in 2024, bringing us to $185 million in cumulative savings by year end. We expect further benefits in 2025 that will take us to and likely beyond our overall goal of at least 200 million in cumulative run rate benefits. As a reminder, in total, approximately 40% of project springboard benefits come from COGS reduction, approximately 40% from other gross margin driving initiatives, and approximately 20% from SG&A.

Speaker Change: Noted a moment ago, we are now increasing that target to an incremental benefit of around 150 million in 2020, full bringing us to $185 million in cumulative savings by year end.

Speaker Change: We expect further benefits in 2025, it will take us two unlikely beyond our overall goal of at least $200 million of commute cumulative run rate benefits.

Speaker Change: As a reminder, in total approximately 40% of project springboard benefits come from Cogs reduction.

Speaker Change: Proximately, 40% from other gross margin driving initiatives and approximately 20% from SG&A.

Jonathan E. Ramsden: Turning to liquidity, we ended the quarter with $289 million of net liquidity, higher than the $254 million in Q4. The increase in liquidity relative to Q4 was driven by increasing our borrowing capacity by up to $200 million with a new Philo term loan facility we completed in April. This is incremental to the borrowing capacity under our $900 million asset-based revolving loan facility. New financing provides us with additional flexibility as we continue our focus on delivering extreme bargains and unmistakable value to our customers. I will now turn the call back over to Bruce.

Speaker Change: Turning to liquidity, we ended the quarter with $289 million of net liquidity.

Speaker Change: Higher than the $254 million in Q4 the.

Speaker Change: The increase in liquidity relative to Q4 was driven by increasing our borrowing capacity by up to $200 million with the new FILO term loan facility, we completed in April.

Speaker Change: This is incremental to the borrowing capacity under our 900 million dollar asset base revolving loan facility.

Speaker Change: The new financing provides us with additional flexibility as we continue our focus on delivering extreme bargains and unmistakable value to our customers.

Speaker Change: I will now turn the call back over to Bruce.

Bruce K. Thorn: Thank you, Jonathan. Despite a challenging consumer environment, we have a lot to be proud of in terms of our progress in transforming the business with our five key actions and enhancing our financial flexibility. We are confident that our actions will put us on a path toward growth and profitability. I'll now turn the call back over to the moderator so that we can begin to address your questions. Thank you.

Bruce K. Thorn: Thank you Jonathan despite a challenging consumer environment. There was a lot to be proud of in terms of our progress in transforming the business with our five key actions and enhancing our financial flexibility.

Bruce K. Thorn: We are confident that our actions will put us on a path towards growth and profitability.

Speaker Change: I'll now turn the call back over to the moderator. So that we can begin to address your questions. Thank you.

Operator: Thank you. We will now be conducting your question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it might be necessary to pick up your handset before pressing star 1.

Speaker Change: Thank you well now be conducting a question and answer session.

Speaker Change: If you'd like to be placed into the question queue. Please press star one on your telephone keypad kind of calculation, telling you indicate your lines in the question queue.

Speaker Change: You May press star two if he would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it might be necessary to pick up your handset before pressing star one once again to be placed into the question queue Press star one at this time.

Operator: Once again, to be placed into the question queue, press star 1 at this time. One moment, please, while we poll for questions. Thank you, and our first question is from the line of Greg Batashkanyan with Wolf Research.

Speaker Change: One moment, please while we poll for questions.

Speaker Change: Thank you and our first question is from the line of Greg <unk> with Wolfe Research.

Speaker Change: Please proceed with your question.

Operator: Hey guys, thanks for the time here. This is Scott Stringer from Wolf Research. You gave some good detail on the, you know, extreme bargains and bargain performance by category. I was wondering if you could quantify the category as a whole, the performance and comps between bargains, extreme bargains, and then the rest of the box.

Speaker Change: Hey, guys. Thanks for the time here. This is Scott Stringer from Wolfe Research you gave some good detail on the extreme bargains and bargain performance by category I was wondering if you could quantify category as a whole the performance in comps between bargains extreme bargains and then the rest of the box.

Bruce K. Thorn: Hey Scott, this is Bruce. Thanks for your question. Yeah, we're really excited about our continued penetration of extreme bargains. And as we mentioned on the call, it's now 28% at the end of Q1. And on an annualized run rate like that, that's nearly a billion dollars in closeout sales.

Bruce K. Thorn: Hey, Scott This is Bruce Thanks for your question Yeah. We're really excited about our continued penetration of extreme bargains and as we mentioned on the call. It's now 28% at the end of Q1 and on an annualized run rate like that that's nearly $1 billion in closeout sales and.

Bruce K. Thorn: And I just want to reiterate that we're focused on getting to 50% of extreme bargains across the box by the end of the year, which gets us to about a $2 billion annualized run rate. So we're excited about that. The penetration of those extreme bargains is happening across all our categories. Obviously, we've got a team now that is well-experienced in close-out buying across all the categories, and that penetration of resources deep in the merchandising organization across our three head merchants is really sound now. So when it comes down to food, consumables, everyday essentials, our hard home, soft home, furniture, seasonal, all those categories are making a good impression.

Bruce K. Thorn: Just want to reiterate that we're focused on getting to 50% of extreme bargains across the box by the end of the year, which gets us to about a $2 billion annualized run rate. So we're excited about that the penetration of those extreme bargains.

Bruce K. Thorn: It's happening across all our categories.

Bruce K. Thorn: Obviously, we've got a oh.

Bruce K. Thorn: A team now that is.

Bruce K. Thorn: That is well experienced in closeout buying across all the categories in that penetration of resources deepen our merchandising organization across our three heads had merchants.

Bruce K. Thorn: It's really sound now so we're at the table when it comes down to food consumables everyday essentials, our art home soft home furniture seasonal all of those categories and making a good good impression that some of the things I noted in our opening remarks were about the progress we're seeing just like in the toy Department being <unk>.

Bruce K. Thorn: Some of the things I noted in our opening remarks were about the progress we're seeing, just like in the toy department. Being able to take sales that were down during the holiday season in Q4 in toys and turn them into a positive comp, and that's continuing to grow through hard home is amazing. We're also seeing the extreme bargain penetration we have with our Broy Hill and real living lines in upholstery actually go to positive comps.

Bruce K. Thorn: But to take sales that were down during holiday in Q4, and toys and turn into a positive comp and thats continuing to grow through hard home.

Bruce K. Thorn: It's amazing we're also seeing the extreme bargain penetration, we have with our broyhill and real living wines and upholstery actually go to positive comps, we're seeing upholstery furniture and positive comps in Q1, and that's accelerating into Q2. So we're excited to see that penetration grow everywhere hard home soft home.

Bruce K. Thorn: We're seeing upholstery furniture in positive comps in Q1, and that's accelerating into Q2. So we're excited to see that penetration grow everywhere, hard home, soft home, all those attachments continue with it. I think the fiercest battleground is in everyday essentials and food and consumables. You see all the headlines out there with people lowering prices, and they're playing off that price leader, drafting off the mass retailers that set the price. Our job isn't to try to draft off them; it's to leapfrog them and go below them.

Bruce K. Thorn: All of those attachments continued with it I think the fiercest battlegrounds is in the everyday essentials and food and consumables you see all the headlines out there with people lowering prices and theyre playing off that price leader drafting off the mass retailers have set the price our job isn't to try to draft off of them. It's the leapfrog them and go below.

Speaker Change: All of them and the penetration we're seeing they're under Mark's leadership is just it's just awesome and so we expect we expect to accelerate that and give our customers more reason to stretch their dollars at big lots stores. So very excited about it once again Q1 was tough.

Bruce K. Thorn: And the penetration we're seeing there under Seth Mark's leadership is just awesome. And so we expect to accelerate that and give our customers more reason to stretch their dollars at a big lot store. So very excited about it. Once again, Q1 was tough. You know, it's a pullback.

Speaker Change: I'd said pulled back you know when you think about what the consumer is seeing Q1, the interest rates got pushed out and come down maybe a little bit of a holiday hangover. We all had a good holiday all of those things come into play in Q1, but that's not what we're seeing in Q2 as we look at Q2, it's going to definitely be better than Q1, we're already seeing improvements from meda.

Bruce K. Thorn: You know, when you think about what the consumer was seeing in Q1, interest rates got pushed out and didn't come down. Maybe a little bit of a holiday hangover. We all had a good holiday.

Bruce K. Thorn: All those things come into play in Q1. But that's not what we're seeing in Q2. As we look at Q2, it's definitely going to be better than Q1. We're already seeing improvements from May to June. And as we go through Q2, our big ticket and extreme bargain products, even in seasonals, are starting to pick up with the weather getting warmer in the Northeast. And that's all being driven by those bargains. We expect our trend in June and July to actually be, you know, better than what we're even guiding to. We're cautiously optimistic about it. But what we're seeing as we go into Q2 is just really good momentum in the big ticket items picking up and across the board.

Speaker Change: June <unk>.

We go through Q2 are big ticket and extreme bargain products, even in seasonal starting to pick up with the weather getting warmer in the northeast and that's all being driven by those bargains. We expect our trend in June July well actually be better than what we're even guiding too we're cautiously optimistic about it but what we're seeing as we go into Q2.

Speaker Change: Just really good momentum in the big ticket picking up across the board.

Operator: That's all really great detail. Maybe just switch topics real quick. I think last quarter you mentioned that you had 200 million in assets that could be monetized. Is there any of that left? Can you kind of give us an update on that?

Speaker Change: That's all really great detail, maybe just switch topics real quick I think last quarter. You mentioned that you had 200 million in assets that could be monetized.

Speaker Change: Is there any of that left can you kind of give us an update there.

Jonathan E. Ramsden: Yeah, hey, good morning, Scott. It's Jonathan.

Speaker Change: Yeah, Hey, good morning, Scott, It's Jonathan Yeah part of that was included in the collateral to the FILO term loan that we executed during the quarter, but we still have a small number of owned stores, probably with a value of around $20 million.

Jonathan E. Ramsden: Yeah, part of that was included in the collateral for the FILO term loan that we executed during the quarter. We still have a small number of owned stores, probably with a value around $20 million. Beyond that, we have some equipment in our Apple Valley, California, D.C., but most of the remainder of that $200 million we quoted was collateral for the FILO term loan.

Speaker Change: Beyond that we have some equipment in.

Speaker Change: Apple Valley, California D C.

Speaker Change: But most of the remainder of that $200 million quoted was was collateral for the FILO term loan.

Operator: Great. Super helpful. Thanks, guys. Thanks, Scott. Thank you.

Speaker Change: Great Super helpful. Thanks, guys.

Scott Stringer: Thanks Scott.

Operator: Our next question is from the line of Brad Thomas with Key Bank Capital Markets. Please answer your question.

Speaker Change: Our next question is from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your questions.

Operator: Hey, good morning, everyone. It's Taylor Zitcon on behalf of Brad.

Zach: Hey, good morning, everyone, it's tailored Zach on for Brad.

Speaker Change: Jonathan could you talk a little bit more about the gross margin improvement.

Operator: Jonathan, could you talk a little bit more about the gross margin improvement? Throughout the year, you saw pretty good improvement in one Q and guided to see good improvement in two Qs. Can you just elaborate a little bit more on that?

Speaker Change: Throughout the year, you saw a pretty good improvement in <unk> and guiding to show good improvement in <unk> and <unk> can you just elaborate a little bit more on that.

Jonathan E. Ramsden: Yeah, happy to tell you. We think the gross margin rate improvement is actually going to accelerate from Q1 to Q2, as we've guided. We had 190 basis points of improvement in Q1. We've set at least 300 basis points of improvement in Q2.

Speaker Change: Yeah, absolutely yeah, we think the gross margin rate improvements actually going to accelerate from Q1 to Q2 as we've guided to.

Speaker Change: 190 basis points of improvement in Q1, we said at least 300 basis points of improvement in Q2, we're up against the more favorable prior year comparison in Q2, because we were highly promotional last year in Q2, which boosted combs degraded gross margin rates to that effect will reverse and we will get a significant gross margin rate improvement there'll be a little bit of a.

Jonathan E. Ramsden: We're up against a more favorable priority comparison in Q2, because we were highly promotional last year in Q2, which boosted comps but degraded gross margin rates. So that effect will reverse, and we'll get a significant gross margin rate improvement. There'll be a little bit of a drag on comps as we lap some of those aggressive promotions and markdowns from last year, but even with that, we still expect to achieve a significant improvement in comps in Q2 relative to Q1.

Speaker Change: Drag on comps as we lap some of those aggressive promotions and markdowns from last year, but even with that we still expect to achieve a significant improvement in comps in Q2 two.

Jonathan E. Ramsden: And as we look out to the back half of the year, we continue to see significant gross margin rate improvement from last year, more like what we're seeing for Q2. We think markdowns and promotions are going to be lower year over year. We think freight is pretty much stabilized. And then there's some significant benefit we're getting from Project Springboard later into the year.

Speaker Change: Q1 <unk>.

Speaker Change: As we look out to the back of the year, we continue to see significant gross margin rate improvement from last year. They are more like what we're seeing for Q2.

Speaker Change: If we think of markdowns and promotions are going to be lower.

Speaker Change: Year over year, we think freight is pretty much stabilized, but then there's some significant benefit we're getting from project springboard later into the year, it's starting to impact us in Q1, and Q2 will be more significant in Q3, and Q4 cost of goods in particular as well as some of the other gross margin driving components of project springboard. So yeah, we feel really good about gross margin rate.

Jonathan E. Ramsden: It's starting to impact us in Q1 and Q2, but it'll be more significant in Q3 and Q4 on cost of goods in particular, as well as some of the other gross margin driving components of Project Springboard. So, yeah, we feel really good about gross margin rates going up nicely in Q2 and continuing to be up in that kind of range in the back half of the year. And Taylor, I would just add that as we continue to increase our penetration of extreme bargains, we're enjoying a nice accretive margin expansion, if you will, against the never-out assortment that we've had historically over the past decade or so.

Speaker Change: Up nicely in Q2, continuing to be up in that kind of range in the back half of the year.

Speaker Change: And Taylor I would just add that as we continue to increase our penetration of extreme bargains were enjoying a nice accretive margin expansion if you will against.

Jessica Tamar Taylor: Against the never out assortment that we've had historically over the past decade or so.

Jonathan E. Ramsden: And you heard me talk a little bit about that in my opening remarks, but you know, it's not uncommon for us to see 500, 600 basis points of margin expansion with extreme bargains versus the core store. And as that continues to grow, which it will, and we'll nearly double that by the year-end, it not only is exciting for our customers, but it's exciting for us because we see that margin expansion play out.

Jessica Tamar Taylor: And you heard me talk a little bit about that in my opening remarks, but it's not uncommon for us to see 506 hundred basis points margin expansion with extreme bargains.

Jessica Tamar Taylor: Versus the core store.

And as that continues to grow at which it will nearly double that by the year end. It not only is exciting for our customers, but it's exciting for us because we see that margin expansion play out.

Jonathan E. Ramsden: Gotcha, thank you. And then maybe on the positive comp later this year, does that require any improvement in the macro to get there? Or is that just a culmination of all the bargains, like treatment bargains, and things like that.

Speaker Change: Gotcha. Thank you.

Speaker Change: And then just maybe on the positive comp later this year does that require any improvement in the macro to get there or is that just a culmination of all the bargains of Treme bargains.

Speaker Change: And things like that.

Jonathan E. Ramsden: Yes, it doesn't assume any improvement.

Jonathan E. Ramsden: This doesn't assume any improvement or deterioration in the macro. It assumes the underlying trend is broadly consistent with what we've seen in the past couple months. The big drivers of the improvement are, again, extreme bargains, which we expect will accelerate significantly in terms of their contribution. We're seeing that starting to take off in Q1. It will accelerate in Q2 and much more so in Q3 and Q4. There's also some project springboard-driven benefit on comp.

Speaker Change: It doesn't assume an improvement or deterioration in the macros.

Speaker Change: Along trend is broadly consistent with what we've seen in the past couple of months the big drivers of the improvement over again.

Speaker Change: <unk>, which we expect will accelerate significantly in terms of the comp contribution we're seeing that starting to take off in Q1, it will accelerate in Q2 and much more so in Q3 and Q4 was also some projects from both driven benefit on coal and then again were also up against.

Jonathan E. Ramsden: And then, again, we're also up against some promotional headwinds from a year ago that will abate as we get later in the year, so that's less of a drag on year-over-year comps. All three of those things, we expect, will help us to have positive comps before the end of the year.

Speaker Change: Some promo headwinds from a year ago that will abate as we get later in the year. So it's less of a drag on year over year comps all three of those things. We accept we expect will help us to positive comps.

Speaker Change: Will the end of the year.

Speaker Change: Thank you.

Operator: Our next question is from the line of Kate McShane with Goldman Sachs. Please proceed with your question.

Speaker Change: Our next Wei. Thank you. Our next question is from the line of Kate Mcshane with Goldman Sachs. Please proceed with your questions.

Operator: Hey, good morning. This is Mark Jordan on for Kate.

Speaker Change: Hey, Good morning, this is mark Jordan on for Kate.

Mark Jordan: Can you help us better understand the health of your core customer did you witness any changes in their purchasing behavior during the quarter and are you seeing any decreases and maybe purchasing frequency.

Bruce K. Thorn: Can you help us better understand the health of your core customer? Did you witness any changes in their purchasing behavior during the quarter? And are you seeing any decreases in, perhaps, purchasing frequency?

Speaker Change: Yeah, I think the.

Mark Jordan: Like I was saying just a moment ago, Mark I think the core customer the.

Mark Jordan: We over penetrate to lower household income customer.

Mark Jordan: Think that they are they are still pulling back they were pulling back on the large discretionary ticket items and that and that that was prevalent in Q1, which kind of muted our gains everywhere else I mean, when you think about it.

Bruce K. Thorn: Yeah, I think like I was saying just a moment ago, Mark, I think the core customer, the, you know, we over penetrate to lower household income customers, I think that they are, you know, they're still pulling back on the large discretionary ticket item. And that, and that was prevalent in Q1, which kind of muted our gains everywhere else. I mean, when you think about it, you know, inflation is still very high, and sentiment is low.

Mark Jordan: You know inflation is still very high sentiment is low.

Bruce K. Thorn: The credit card balances are high and increasing. And, and you know, when you think about it, you look at the headlines out there, people say, you know, the economy is still growing, people are still spending well. There's a lot of fixed costs, gas, utilities, rent, mortgage payments that are causing that high spend, but when you get down into lower income households, they're still hurting. And we're seeing that, and you're probably hearing that as well.

Mark Jordan: Credit card balances are high increasing and.

Mark Jordan: And when.

Mark Jordan: When you think about it and you look at the headlines out there people say the economy is still growing people are still spending well theres a lot of fixed cost gas.

Mark Jordan: Utilities rent and mortgage payments that are causing that high spend but when you get down into lower income households out there, they're hurting still and we're saying that in theory, you're probably hearing that as well that played out in Q1, and we saw that pullback, especially when the interest rate.

Bruce K. Thorn: That played out in Q1, and we saw that pullback, especially when the interest rate conversations got pushed out to the latter half of this year or into 2025. We're not counting on that, but that put a chill on the big ticket.

Mark Jordan: Conversations got pushed out to the latter half of this year or into 2025, we're not counting on that but that put a chill on the big ticket, it's normalized a bit in Q2, and we're starting to see traction. There I believe we're also seeing trade down some of our best selling items are items broyhill items that are priced over 1000.

Bruce K. Thorn: It's normalized a bit in Q2, and we're starting to see traction in there. I believe we're also seeing trade downs. Some of our best-selling items are items, Broyhill items, that are priced over $1,000 because EBOs are sectionals, but we're seeing traction. Like I said just a moment ago, our upholstery business positively comped in Q1 and continues to grow in Q2. So yeah, I think the customer, especially the lower household income customer, is hurting.

Mark Jordan: Dollars, because he bowser sectional or we're seeing traction like I said, just a moment ago, our upholstery business positively comped in Q1 and continues to grow and in Q2. So yeah, I think the customer, especially the lower household income customer is hurting that continued to hurt.

Bruce K. Thorn: They continue to hurt, but I think they've normalized and adjusted accordingly with the news on interest rates getting pushed out, and we're starting to see some trade downs, just ever so slightly, but we're pleased with the traction we're seeing as we go from May to June and into the back half of Q2.

Mark Jordan: They've normalized and adjusted quarterly with the news on the interest rates getting pushed out and they're in and.

Mark Jordan: And we're starting to see some trade down just ever so slightly but we're pleased with the traction we're seeing as we got from May to June and into the back half of Q2.

Operator: Okay, perfect. Thank you very much.

Operator: And then just thinking about the closeout environment, you know, how do you view supply for the remainder of the year? You know, are you seeing any areas where product is particularly attractive, and are you seeing any increased competition on deals?

Speaker Change: Okay perfect. Thank you very much.

Speaker Change: And then just thinking about the closeout environment, how do you view supply for the remainder of the year are you seeing any areas where product is particularly attractive and are you seeing any increased competition on deals.

Bruce K. Thorn: Yeah, we think it's a robust opportunity to continue to drive our closeout business. And remember, we call it bargains, extreme bargains. It's really closeout, opportunistic buys, factory sourced products, things we engineer. It's robust.

Yeah, we think it's a robust opportunity to continue to drive our closeout and remember we call. It bargains extreme bargains and it's really close out opportunistic buys factory source products things, we engineer it's robust.

Bruce K. Thorn: Every single day, we've got things; we've got a team out there that's at the table getting the deals. We're fast. We're easy to do business with.

Speaker Change: Single day, we've got things, we've got a team out there that it's at the table getting getting getting the deals we're fast we're easy to do business with.

Bruce K. Thorn: We've got a vast network, VCs, and stores where we can take about any buy. So we see it as very opportunistic. We don't see it slowing down. We see it as just us getting our name back out there. And when we get back out there, it's kind of like rekindling our relationships with people of the past. And it's exciting. We got Seth and Shelly and Kevin working on it with their teams.

Speaker Change: <unk> got a vast network Dcs and.

Speaker Change: In stores, where we can.

Speaker Change: Take or pay or take about any buy so it's we see it as very opportunistic we don't see it slowing down we see it as a as just.

Speaker Change: Just us getting our name back out there and when we get back out there, it's kind of like rekindling our relationships with people in the past and it's exciting you know, we got SaaS and Shelly and Kevin working it with their teams, but I see a robust pipeline I don't see competition at this point I see us getting back to our HERA.

Operator: But I see a robust pipeline. I don't see competition at this point. I see us getting back to our heritage in an accelerated manner. We're already exceeding our goals through the first quarter. And like I said, our sites are dead on, and for 50% penetration of sales by the end of the year, which once again, that's nearly $2 billion of annualized closeout type value extreme bargain deals for the company. Our closeout rate, or extreme bargain rate, at 28% is the highest since I've been with the company for nearly 10 years. And so you can see where this is going. We're accelerating into this, and we see no ceiling at this point. Excellent. Thank you very much.

Speaker Change: <unk> in an accelerated manner, we're already exceeding our goals through first quarter and like I said our sites there are dead on and for 50% penetration of sales by the end of the year, which once again, that's nearly $2 billion of annualized closeout type value extreme bargain deals for the company our closeout rate.

Speaker Change: Our extreme bargain rate at 28% as our highest it's been since I've been with the company and nearly 10 years and so you can see where this is going we're accelerating into this and we see no ceiling at this point.

Speaker Change: Excellent. Thank you very much.

No.

Speaker Change: Thank you.

Operator: At this time, this does conclude today's teleconference and webcast. A replay of this call will become available. You can access the replay until June 20th by dialing toll-free 877-660-6853 and entering replay confirmation 137-46-656, followed by the pound sign. The toll number is 201-612-7415, and the replay confirmation number is 13746656 followed by the pound sign. You may now disconnect and have a great day. We thank you for your participation.

Speaker Change: At this time this does conclude today's teleconference and webcast.

Speaker Change: A replay of this call will become available you can access the replay until June 20th by dialing toll free 8776606853.

Speaker Change: And that's your replay confirmation 13746656, followed by the pound sign.

Speaker Change: The total number is 20161 to 7415.

Speaker Change: Replay confirmation 13746656, followed by the pound sign.

Speaker Change: You may now disconnect and have a great day, we thank you for your participation.