Furniture boosts Big Lots Q2 sales
COLUMBUS, Ohio — Big Lots fiscal second quarter net sales increased 2.5%, and the retailer posted its fifth consecutive quarterly comparable-store sales increase, with the furniture category continuing to be a key driver.
While net earnings declined significantly due to charges tied to its strategic business transformation plan, adjusted earnings per share for the value-oriented retailer beat company guidance and analysts’ estimates by a wide margin, leading to a rally in its share price.
On a conference call with the investment community, President and CEO Bruce Thorn said strengthening Big Lots’ presence in the home category is part of the multi-pronged business transformation initiative it refers to as “Operation North Star,” and the roll out of the Broyhill brand, starting with a soft launch in January, represents the first step.
“This iconic brand will be a growth driver not only in furniture, but also in our seasonal, soft and hard home categories, with emphasis on a better and best offering.” he said.
Net sales for the period ended Aug. 3 increased to $1.25 billion from $1.22 billion for the same quarter last year. Comparable-store sales increased 1.2%.
Net earnings declined to $6.2 million, or 16 cents per share, from $24.2 million, or 59 cents per share, for the second quarter last year. The most recent results include after-tax charges of $14.5 million, or 37 cents per share, associated with implementation of a strategic business transformation that includes everything from the continuing roll out of its “Store of the Future” format to cost-savings initiatives. After adjusting this out, net income was $20.6 million, or 53 cents per share, compared to adjusted net income of $24.2 million or 59 cents per share a year ago.
The adjusted earnings-per-share figure topped Big Lots’ guidance, which was in the range of 35 cents to 45 cents per share. The stock was up nearly 5% in late morning trading Friday.
“Going forward, despite the current tariff headwinds, we are confident we will be able to navigate through this environment to deliver a good outcome for 2019,” Thorn said in a statement.
The furniture category, which included upholstery, mattresses, case goods and ready-to-assemble furniture, was the top performing merchandise category during the quarter, with “sales up high single digits on top of 4% increase last year,” said Lisa Bachmann, executive vice present and chief merchandising and operating officer. All four departments performed well, she said on a conference call, adding that customer are continues to respond to the retailer’s motion upholstery offering, which was expanded this year.
Big Lots also has transitioned the bulk of its mattress offering from Serta to Sealy in the majority of its stores, an initiative it announced on the first quarter call.
“The Sealy band has a strong quality perception and has performed very well in our larger format stores currently offering both Sealy and Serta mattresses,” Bachmann said. “This expanded partnership will increase our ability to offer more frequent updates of styles, features and technology and elevate the excitement factor in this key category.”
While the majority of its bedding offering is now under the Sealy brand, Big Lots will continue to carry Serta in all stores as well as an expanded offering in its larger format stores and online, she added.
Big Lots’ continuing rollout of its Store of the Future format— with furniture featured front and center of the store — also is proceeding. The Top 100 company started the year with roughly 200 of its 1,415 stores under the format and will finish the year with about 460 new format stores.
Thorn said he’s encouraged by the progress in the retailer’s strategic transformation over the past 90 days. “Our existing initiatives are working, and we have important new strategies in progress to drive profitable long-term growth and deliver value to our shareholders.”
For the first six months of the fiscal year, the retailer reported a 2.3% increase in net sales to $2.55 billion. Net income dropped to $21.7 million, or 55 cents per share, from $55.4 million, or $1.33 per share, in the 2018 fiscal first half.
Big Lot maintained its full-year guidance for adjusted earnings per share in the range of $2.70 to $$3.85 but lowered its comp-store sales guidance to “flat to slightly positive” from the previous estimate of a low single-digit increase.