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Summary

  • Responding to a SEC request, Big Lots could not provide numbers to back up the effectiveness of their core strategy.
  • Pressed for details, Big Lots explained that it actually abandoned the old "WIN" strategy which "does not effectively measure or drive long-term performance".
  • Instead, they implemented a new "Edit to Amplify" strategy which uses a new key metric, but now Big Lots does not disclose those results either.

Big Lots (NYSE:BIG) recently disclosed (on March 21st) the results of a SEC inquiry that highlighted their inability to measure or disclose the metrics that show the success of their changing strategies.

This is important because a company's financial results are there, in large part, to show how well management is doing its job, how well they are executing on their strategic plans. Accounting rules in the United States specifically require companies to discuss the key factors that management uses to measure the business and how those metrics drive results.

In last year's annual report, Big Lots said that average transaction value was the predominant driver, yet Big Lots provided no discussion about how this measure actually drove results. The SEC called them on it and asked them to give specifics.

Instead, Big Lots did not disclose the requested results, saying the measure was actually not useful. Average transaction value was core to former CEO Steven Fishman's What's Important Now, or WIN, strategy. Big Lots has decided under their new CEO, David Campisi, that WIN was a poor strategy and that average transaction value was not an effective tool for measuring the business.

Investors should want to know that there is a new strategy in place and what the key performance measures are for the new strategy. Since the August 30 conference call, management has introduced their "Edit to Amplify" strategy. What is Edit to Amplify? I kid you not, it means Big Lots will exceed the expectations of their core customer, the mythical "Jennifer", by editing out products that she doesn't want to buy, and amplifying in products that she does want to buy. Well if improving the product mix qualifies as a strategy, then I guess they have one. Investors can sleep easier now.

But back to the issues raised by the SEC, who wants solid numerical metrics that tie results to Big Lots' strategy. Big Lots now says that the key metric is comparable store sales by merchandise category. I looked at the most recent 10-Q, earnings announcement, and conference call transcript, and I see no mention of this measure being disclosed for investors. Apparently Big Lots is trying to distract investors with jargon and avoid disclosing numbers that allow us to measure management's effectiveness. Hopefully the SEC will take another look and ask for meaningful numbers.

Disclosure: I am short BIG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Big Lots Still Does Not Supply Key Metrics