Possible Turnaround Progress at Big Lots May Be Underestimated
Headline: Big Lots Struggles in Q1 as Net Sales Plunge, But Cost-Cutting Initiatives Offer Hope
- Big Lots, the popular discount retailer, reported a 10.2% drop in first-quarter net sales to $1 billion last Thursday, falling from $1.1 billion in the same period last year. The company also posted a net loss of $205 million, albeit relatively flat compared to the prior year.
- CEO Bruce Thorn, however, highlighted a silver lining: Big Lots' net liquidity increased to $289 million, up from $254 million in Q4, due to diligent cost-management efforts. Debt, on the other hand, rose to $573.8 million during the quarter, a small increase from a year ago. Comparable sales dropped nearly 10%, but gross margin inched up slightly to 36.8%.
- Thorn cited ongoing consumer constraints on spending on luxury, discretionary items, largely driven by inflation and high interest rates, as factors hampering Big Lots' performance.
Insight: As part of Project Springboard, Big Lots' cost-reduction initiative, the company is aiming higher, raising its target savings goal to $185 million by year-end. This comes after recognizing an opportunity to accelerate progress on the plan. Lower inventory, down to $949.9 million from about $1.09 billion last year, underscores this move, with fewer on-hand units and decreased average unit costs contributing to the decrease. Big Lots is also beefing up its merchandising team and focusing on securing more extreme bargain merchandise to strengthen its position.
- Although Neil Saunders, managing director of GlobalData, deemed Big Lots' performance "one of the worst in the retail sector," analysts with Telsey Advisory Group acknowledged the retailer's progress in its turnaround strategy, praising its moves to lease back stores, refinance debt, and open buying offices in China and Vietnam.
- Despite the challenges, Big Lots expects to see positive comparable sales by the end of the year and gross margin improvements over time. With a focused extreme value merchant team and a more competitive merchandise sourcing strategy in place, Big Lots' future may look a bit brighter.
- The escalating inflation and high interest rates have led consumers to constrain their spending on luxury, discretionary items, adversely affecting Big Lots' performance.
- Big Lots, the struggling retailer, aims to save $185 million by year-end as part of its cost-reduction initiative, Project Springboard, by lowering inventory and securing more extreme bargain merchandise.
- Despite the company's recent challenges, Big Lots expects an improvement in its gross margin and positive comparable sales by the end of the year.
- AI could play a role in the retail industry's future as companies search for ways to optimize inventory management, reduce costs, and improve sales.
- Big Lots' net liquidity has increased to $289 million due to its diligent cost-management efforts, a crucial factor in the company's financial position amidst the ongoing economic war.
- Analysts have recognized Big Lots' progress in its turnaround strategy, praising its moves to lease back stores, refinance debt, and open buying offices in China and Vietnam, despite labeling its Q1 performance as one of the worst in the retail sector.
