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Big Lots (BIG)
Q3 2011 Earnings Call
December 02, 2011 8:00 am ET
Timothy A. Johnson - Senior Vice President of Finance and Vice President of Strategic Planning & Investor Relations
Previous Statements by BIG
» Big Lots' CEO Discusses Q2 2011 Results - Earnings Call Transcript
» Big Lots,'s CEO Discusses Q1 2011 Results - Earnings Call, May 26, 2011 Transcript
» Big Lots' CEO Discusses Q4 2011 Results - Earnings Call Transcript
Steven S. Fishman - Chairman, Chief Executive Officer and President
Charles W. Haubiel - Executive Vice President of Legal & Real Estate, General Counsel, Corporate Secretary and Member of Executive Committee
Anthony C. Chukumba - BB&T Capital Markets, Research Division
Joseph I. Feldman - Telsey Advisory Group LLC
Charles X. Grom - Deutsche Bank AG, Research Division
Anthony C. Lebiedzinski - Sidoti & Company, LLC
Peter J. Keith - Piper Jaffray Companies, Research Division
Patrick McKeever - MKM Partners LLC, Research Division
David M. Mann - Johnson Rice & Company, L.L.C., Research Division
John Zolidis - Buckingham Research Group, Inc.
Meredith Adler - Barclays Capital, Research Division
Ronald Bookbinder - The Benchmark Company, LLC, Research Division
Jeffrey S. Stein - Northcoast Research
Daniel R. Wewer - Raymond James & Associates, Inc., Research Division
Ladies and gentlemen, welcome to the Big Lots Third Quarter 2011 Conference Call. This call is being recorded. [Operator Instructions] At this time, I would like to introduce today's first speaker, Senior Vice President of Finance, Tim Johnson.
Timothy A. Johnson
Thanks, Jennifer, and thank you, everyone, for joining us for our third quarter conference call. With me here in Columbus today are Steve Fishman, our Chairman and CEO and President; Chuck Haubiel, Executive Vice President, Real Estate, Legal and General Counsel; and Joe Cooper, Executive Vice President, Chief Financial Officer of Big Lots and President of Big Lots Canada. Also, I'm pleased to welcome a new member to the call this morning. Andy Regrut has joined us as -- joined Big Lots as Director of Investor Relation and is sitting in with us this morning. Andy's background is focused on finance with his most recent role being a combination of both IR and Finance at Scotts Miracle-Gro here in Columbus. I'm confident you'll enjoy meeting and working with Andy.
Before we get started, I'd like to remind you that any forward-looking statements on today's call involve risks and uncertainties and are subject to our Safe Harbor provisions as stated in our press release and our SEC filing and that actual results can differ materially from those described in our forward-looking statements. Our consolidated financials include results from our U.S. operations and from our Canadian business since acquisition or July 18, 2011. Our statements also include immaterial amounts of discontinued operations activity. All of our commentary today is focused on continuing operations.
With that, I'll turn it over to Steve.
Steven S. Fishman
Thanks, TJ, and good morning, everyone. For those who have followed Big Lots for any length of time, you know the third quarter has been our most challenging quarter to break through and drive meaningful improvement. It's our lowest volume quarter and the lowest profit quarter, and quite frankly, it's been a transitional quarter, meaning a significant amount of time and focus is centered on preparing for holiday in November and December where we make over half of our year's profit.
This year, we took a much more aggressive approach to third quarter, and I'm pleased with the comp increase, the improving trends in most of our major categories and maybe most importantly, the favorable customer response to our new holiday sets, which hopefully bodes well for the 9 weeks of Christmas. From a merchandising perspective, consumable trends accelerated, and Q3 comps were up in the high-single digits. Our assortment has steadily become broader as the year has progressed in closeouts, as well as in planned events and programs. And note in Q3, we had our second successful international food fair and the introduction of our expanded Fresh Finds captive label program, which has been well received by the customer. Each of these initiatives represents meaningful growth opportunities for 2012, both in the United States and potentially in Canada as well.
From an execution standpoint, we know the marketing and presentation of the product in the stores improve through the wall of value sets and the prevalent signage of extreme values compared to pricing. Hardlines comp experienced a nice pop in Q3. It's all about closeouts. Strength of brands in small appliances and home maintenance items made the difference. Furniture comps were up in the low-single digits on top of a double-digit positive comp last year. Strength in sales of mattresses and our expanded selection of fireplaces drove results for the quarter. We’ve strategized to grow this business for the holiday selling season, and I continue to believe Furniture is one of our biggest growth categories over the next several quarters and years. Positive performances were also turned in by our Home businesses and Electronics business, each of which comped up low singles and are an important part of Q4.
We did have a couple of challenges in Q3, particularly in fall seasonal, our Halloween and harvest, where we missed the mark.
I know TJ will cover the balance sheet in a moment, but let me say from an inventory standpoint, I'm comfortable with our overall levels and feel confident the growth in receipts are focused in the right areas: Electronics, Christmas Seasonal, Furniture, Domestics and Consumables, while taking inventory away from down trending categories, most notably, Toys.
Now TJ is going to give you some detail on the quarter.
Timothy A. Johnson
Thanks, Steve. I'm going to focus my comments on actual results for both U.S. and Canada. Chuck will then give you an update on Real Estate, and then Joe will update you on our progress in Canada and also speak to our updated guidance for Q4 and the full year.
Speaking first to U.S. operations. Sales for the third quarter were $1.117 billion, an increase of 5.8% compared to the $1.056 billion we reported for the third quarter of last year. Comparable store sales increased 1.7%. For Q3, operating profit dollars were $15.8 million, a decrease of approximately $11 million compared to last year. As anticipated, our operating profit decline was a result of a lower gross margin rate, partially offset by sales growth and expense leverage.