This summary is based on the first quarter fiscal 2008 earnings call conducted by Big Lots Inc. (BIG) on May 29, 2008.
Management:
-
Vice President, Strategic Planning and Investor Relations: Timothy A. Johnson
-
Chairman of the Board, President, Chief Executive Officer: Steven S. Fishman
-
Chief Financial Officer, Senior Vice President: Joe R. Cooper
Key Investors Issues
- Sales rose 2% to $1.15 billion in the prior year.
- Income from continuing operations was $34.5 million or 42 cents per share, up 29.2%.
- Big Lots completed its $150 million share repurchase program by repurchasing $37 million, or 2.2 million shares.
First Quarter Highlights
Sales were $1.152 billion, compared to $1.128 billion in the prior year as comparable store sales increased 3.4% against a 4.9% comp increase last year.
- The gross margin rate of 40.3% was 70 basis points higher than last year’s rate of 39.6%, with the improvement principally due to improved initial markup, lower inbound freight costs due to the initiatives, and lower shrink results related to physical inventories taken.
- SG&A rate was 100 basis points lower than last year as leverage was achieved through first operational improvements in store payroll, distribution, and transportation.
- Improved inventory flow and efficiencies gained from strategic initiatives were only partially offset by higher fuel costs.
Depreciation expense was $3 million lower than a year ago as the timing of how CapEx will be invested throughout 2008 will narrow this gap in future quarters as total CapEx spend for the year will increase meaningfully compared to a year ago.
- The 3.4% comp, improved gross margin rate, and SG&A leverage drove operating profit dollars to $58.2 million, up 51% from $38.6 million in the prior year.
- Net interest expense was $1.4 million compared to net interest income of $2.9 million last year, due to the repurchase of $750 million of company stock.
- Income from continuing operations was $34.5 million or 42 cents per share, up 29.2% from $26.7 million, or 24 cents per diluted share a year ago as a result of significant expense leverage driven by the comparable store sales increase and improvement in the gross margin rate.
- Total inventory at $725 million, was down $73 million, or 9% compared to last year, with the lower inventory resulting from an 8% decline in average store inventory and a 1% decline in overall store count.
Cash flow was $41 million compared to cash outflows of $9 million last year, with the $50 million increase in cash flow due to increased earnings and lower inventory levels, partially offset by higher capital expenditures.
- The cash flow generated was used to complete the $150 million share repurchase program as it ended the quarter with debt of $165 million.
- Capital expenditures totaled $18.3 million, up $10.3 million compared to the first quarter of last year, primarily related to the investments toward the SAP implementation and the continued rollout of the new POS register systems.
- Depreciation expense was $18.8 million, or $3 million lower than last year due to the run-off of fully depreciated assets, including a portion of the significant store remodeling programs from five years ago.
- The firm opened two new stores and closed one store, leaving 1,354 stores and total selling square footage of $28.9 million.
- Big Lots completed its $150 million share repurchase program by repurchasing $37 million, or 2.2 million shares, at a weighted average price of $17.28 per share.
Strategy Initiatives:
- The firm has remained focused on the elements of the win strategy as well and from a real estate perspective, the store retrofits for the year are moving ahead on schedule and will be completed in the next few weeks.
- It remains vigilant on the cost structure which has been and will continue to be a key component of success.
- The furniture distribution center consolidation, which will be a new key driver of efficiency in the second half of this year, is on track.
- The firm is ramping up furniture receipts in four of the five closeout distribution facilities and the Columbus furniture distribution’s center operation will start to wind down over the next few weeks.
- It continues to invest in the future of this business by rolling out of the new store register systems and the SAP implementation.
Fiscal 2008 Outlook:
- Comp sales are forecasted up in the 1% to 2% range against a 5.2% comp increase last year.
- The firm expects that the incremental sales from additional inventory purchases related to the drugstore liquidation deal, as well as the home event planned in the second, will essentially offset last year’s home furnishings deal from a comp perspective.
- Second quarter earnings are estimated to be in the range of 21 cents to 25 cents per diluted share.
Full year income from continuing operations is expected to be in the range of $1.80 to $1.90 per diluted share, compared to the original guidance of $1.70 to $1.80 per share.
- For the full year, the firm now expects comparable store sales will increase approximately 2%.
- Gross margin rate will be slightly up to last year and the SG&A rate is anticipated to be in the range of 34.3% to 34.5%, or 20 to 40 basis points below last year.
Key questions and answers from the first quarter earnings call conducted by Big Lots Inc. (BIG) on May 29, 2008.
Charles Grom (JP Morgan):
What is the appetite to maybe establish a new buy-back, stock buy-back plan given that you are going to generate close to $200 million in free cash this year?
