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Home Goods Slump Sinks Big Lots in Q3

The third quarter was not kind to discount retailer Big Lots, with the company reporting a net loss of $103.0 million or $3.56 per share for the period ending Oct. 29.

The loss includes a $16.3 million after-tax charge, or $0.56 per share, related to store asset impairment fees. That charge excluded, Big Lots’ adjusted net loss was $86.7 million, or $2.99 per share. Comparing this year to the last, the retailer’s net loss for the third quarter of fiscal 2021 was $4.3 million, or $0.14 per diluted share.

Net sales for the third quarter of fiscal 2022 totaled $1.204 billion, a 9.8 percent decrease compared to $1.336 billion during the same period last year. Last year’s decline was driven by a comparable sales decrease of 11.7 percent. Net new stores and relocations contributed approximately 190 basis points of sales growth compared to the third quarter of 2021.

Big Lots CEO Bruce Thorn pointed to a challenging retail environment—which includes softening demand for home goods and furniture, a key category for the retailer—as a driver of the losses.

“The third quarter marks another quarter in which we met the challenges of a tough environment head on and did what we said we would do,” he said. “Our sales and gross margin were in line with guidance and, importantly, year-over-year inventories continued to come down materially. We saw favorability in SG&A, as we tightly managed costs, and have strengthened our balance sheet and liquidity position.”

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Inflated inventories have been an issue for many home goods retailers, and Big Lots is no exception. The company’s inventory ended the third quarter of fiscal 2022 at $1.3 billion compared to $1.27 billion for the same period last year, with the 5.3 percent increase driven by higher average unit costs.

As of the end of the third quarter of fiscal 2022, Big Lots reported $62.1 million of cash and cash equivalents, along with $459.9 million of long-term debt, compared to $70.6 million of cash and cash equivalents and no long-term debt as of the end of the same quarter in 2021.

In September, Big Lots completed the refinancing and replacement of its existing $600 million senior unsecured credit facility with a new $900 million five-year revolving asset-based loan (ABL) facility. The ABL is secured by the company’s working capital, with the borrowing base comprised of eligible credit card receivables and the company’s eligible inventory, less applicable reserves, that fluctuates each month. Big Lots said the new facility strengthens the company’s liquidity position and increases its financial flexibility.

Looking at the remainder of the fiscal year, Big Lots expects comps to be down in the low double digits. Net new stores are expected to add around 170 basis points of growth versus the final quarter of 2021, and the retailer expects its fourth-quarter gross margin rate to improve sequentially compared to the third quarter while remaining in the mid-30s range. This expectation accounts for additional markdowns related to accelerated store closures and continued efforts to clean up slow-moving inventory.

“Going forward, we will build on the significant progress we have achieved in strengthening our business model,” Thorn said. “These efforts will enable us to better adapt to continuously evolving customer needs, build upon our core competencies and deliver incredible value.”

CEO’s Take: While Big Lots doesn’t see a major turnaround in the near-future, Thorn said he’s confident the company is on the right track to weather continuing retail marketplace challenges.

“Although we are operating in a challenging macroeconomic environment, we remain enthusiastic about our tremendous opportunity to provide even more value for our customers,” he said. “We will continue to transform our business by offering customers amazing deals and more exciting assortments, which are easier to find and more convenient to shop. We will find more ways to be efficient with a continued focus on growing margin, reducing expenses and making highly disciplined investment decisions.”