Big Lots' (BIG) CEO David Campisi on Q2 2014 Results - Earnings Call Transcript

Aug.29.14 | About: Big Lots, (BIG)

Big Lots, Inc. (NYSE:BIG)

Q2 2014 Earnings Conference Call

August 29, 2014 8:00 AM ET

Executives

Andy Regrut - Director, IR

David Campisi - President and CEO

Tim Johnson - EVP and CFO

Analysts

Brad Thomas - KeyBanc Capital Markets

Peter Keith - Piper Jaffray

Paul Trussell - Deutsche Bank

Matthew Boss - JPMorgan

Patrick McKeever - MKM Partners

Meredith Adler - Barclays Capital

Joe Feldman - Telsey Advisory Group

David Mann - Johnson Rice

Jeff Stein - Northcoast Research

Dan Wewer - Raymond James

Operator

Ladies and gentlemen, welcome to the Big Lots Second Quarter 2014 Teleconference. This call is being recorded. During this session all lines will be muted until the question-and-answer portion of the call. (Operator Instructions) At this time, I would like to introduce today’s first speaker, Andy Regrut, Director of Investor Relations.

Andy Regrut

Thanks, Laurie and thank you everyone, for joining us for our second quarter conference call. With me here today in Columbus are David Campisi, our CEO and President and Tim Johnson, Executive Vice President, Chief Financial Officer.

Before we get started, I’d like to remind you that any forward-looking statements we make 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 filings, and that actual results can differ materially from those described in our forward-looking statements.

All commentary today is focused on adjusted non-GAAP results from continuing operations. Reconciliations of GAAP to non-GAAP adjusted earnings are available in today’s press release. This morning, David, will start the call with a few opening comments, TJ, will review the financial highlights for the quarter and update the outlook for 2014 and David will complete our prepared remarks before taking your questions.

So, with that, I’ll now turn it over to David.

David Campisi

Thanks, Andy and good morning, everyone. I am very pleased with the results we reported this morning. For the second quarter or the second consecutive quarter our comps were positive and well within the guidance range we provided. And our earnings were above the high-end of our range. From a merchandising perspective five of our seven merchandise categories comped positive in the quarter, only two categories were down to last year, both of them were edit to amplify categories where we have downsized or exited classifications of the business.

Trends in our food business remained very strong comping high single-digits. Trey and his team have done a great job improving the consistency and breadth of our offerings. We’ve improved our in store signage to make it easier for Jennifer to find all the items on her list while also providing an easy way for her to determine which of our favorite brands are never out and will always be in our stores. We are also pleased with the progress of rolling out our coolers and freezers. We’re on pace to complete this year’s roll out to approximately 600 stores. This will have us somewhere in the neighborhood of 725 stores with coolers and freezers by the all important holiday in fourth quarter selling season.

Next is consumables, the team did a great job and the category was up mid single-digits with consistent growth in HPC, home organization, chemicals, paper, pet and housekeeping, actually very similar to Q1 results. And we love consistency at Big. Another solid performance both in never out and close out products. Soft home comps were up high single digits driven by broad based strength across bedding, textiles, flooring and bath. Martha and her team have done a tremendous job improving our fashion sense and executing a discipline of quality, brand, fashion and value or QBFV.

We’re still very early in the evolution of this category which is why I’m so excited about the prospects. For the second quarter soft home was a leading performer for us and back-to-school which delivered in late July has provided quality with a pop of color that Jennifer has responded to very, very positively. Furniture was also up high single-digits, with strength across most departments including upholstery, case goods, ready-to-assemble and mattresses. The business benefitted from the roll out of furniture financing which was completed in 1,300 stores at the end of June.

Second was - seasonal was up low single-digits, it’s not a surprise, we’re not the first to say it but weather certainly wasn’t our friend in the spring. And yet despite these challenges the team put up a positive comp and we exited Q2 with spring seasonal and inventory levels down nearly double-digits. And finally, electronics and hard home, as we expected both of this were down mid to high-teens. Remember these categories had a majority of the added to amplify clearance activity we began back in Q4 of last year. Even though we did love the product in these categories a year ago we still had to offset or replace sales from these edits and exits.

So with that, I’m now going to turn the call over to TJ for more insight and detail on the quarter.

Tim Johnson

Thanks, David, and good morning everyone. Net sales for continuing operations for the second quarter of fiscal 2014 were 1.195 billion, an increase of 1.2% over the 1.181 billion we reported last year. Comparable store sales for the stores opened at least 15 months increased 1.7% which compares to our guidance range of plus 1% to plus 3%. Income from continuing operations was $17.2 million or $0.31 per diluted share, which was slightly above the high-end of our guidance, which called for $0.24 to $0.30 per diluted share. This result compares to the last year’s adjusted income from continuing U.S. operations of 21.5 million or $0.37 per diluted share.

For Q2 the operating profit rate for continuing operations was 2.3% compared to last year’s adjusted rate for continuing U.S. operations of 3%. The decline in rate was in line to slightly better than our expectations and resulted from flat gross margin rate and expense deleverage. Our gross margin rate for the quarter was 39.3%, which equaled last year’s Q2 rate. Total expense dollars were 442 million and the expense rate of 36.9% was up 60 basis points to last year.

The expense deleverage came from our investment in people, higher depreciation expense and higher bonus expense as the business outperformed our internal plans in the second quarter. Interest expense was slightly less than last year and the second quarter tax rate was 37.3% compared to last year’s adjusted rate of 38.7%.

During the second quarter we opened 4 new stores and closed 7, leaving us with 1,493 stores and total selling square footage of 32.8 million. Income from discontinued operations for the second quarter of fiscal 2014 was 2.7 million or $0.05 per diluted share compared to our guidance which calls for an immaterial net loss. The income was a result of tax benefits that were generated with the wind down of our Canadian operations.

Moving on to the balance sheet, inventory ended the second quarter of fiscal 2014 at 799 million, compared to 914 million last year. The reduction in inventory was driven by a 6% decrease in inventory per store in our U.S. stores, a lower U.S. store count, and the strategic decisions to close our business in Canada and liquidate our wholesale operation. We ended the second quarter with 62 million of cash and cash equivalents and 57 million of borrowings under our credit facility. This compared to 64 million of cash and cash equivalents and 142 million of borrowings under our credit facility last year.

Our use of cash generated by our U.S. operations in the last 12 months was focused on returning cash to shareholders through both repurchase and dividends lowering our overall debt levels and funding closing activity of our former Canadian operations. As we announced at our investor conference in June, our Board of Directors initiated a cash dividend program on June 25th. Yesterday as part of the program, the Board declared a quarterly dividend of $0.17 per common share payable on September 26th to shareholders of record as of the close of business on September 12th.

Additionally during Q2, you may remember we completed our March 2014 share repurchase program. For that program in total, we invested $125 million to repurchase 3.3 million shares at an average price of $38.12 or nearly 20% below yesterday’s closing price of approximately $47 or $48 per share. Also as noted in today’s press release, our Board of Directors approved a new share repurchase program providing for the repurchase of up to $125 million of our common stock.

Now turning to guidance, as many of you know Q3 is somewhat of a transitional quarter for Big Lots and many retailers as we incur costs and set up for holiday ahead of a spike in sales in Q4 for the November-December timeframe. For Q3, we are forecasting results from continuing U.S. operations to be in the range of a loss of $0.04 to $0.10 per diluted share compared to an adjusted loss from continuing operations of $0.07 per share in the third quarter of fiscal 2013.

It’s important to note this guidance reflects a sequential EPS improvement to last year from Q2. In fact, Q1 was down $0.20 below LY, Q2 $0.06 below LY and now what we are saying with our Q3 guidance we’re forecasted to be only slightly below or potentially even beat LY. This trajectory is consistent with our internal plans and our communicated expectations since the beginning of the year. This estimate is based on comparable store sales in the low single-digit range, a slightly lower gross margin rate and SG&A expenses as a percent of sales slightly lower than last year. The slight reduction in the gross margin rate is a function of merchandise mix, particularly giving our expectations of a double-digit comp in food and the planned negative comps in seasonal or one of our higher margin categories.

We planned fall seasonal in Q3 below LY particularly in Halloween and early Christmas based on the last several years of a later selling season. The potential for slight expense leverage in the model demonstrates solidifying of the model and a low leverage point taking hold. For Q4, we’re forecasting income from continuing operations to be in the range of $1.70 to $1.76 per diluted share, compared to adjusted income from continuing U.S. operations of $1.45 per diluted share in the fourth quarter of fiscal 2013. This forecast assumes comps in the low single-digit range at significantly higher gross margin rate and expenses as a percent of sales slightly higher than last year.

The improvement in the gross margin rate anticipates fewer markdowns this year as we anniversary the impact of the edits and exits in last year’s Q4 results. Expenses as a percent of sales are expected to increase slightly in this model driven by potential bonus payouts this year compared to virtually no payouts in the prior year. Our updated outlook for the full year of fiscal 2014 calls for income from continuing operations to be in the range of $2.40 to $2.50 per diluted share, this compares to our previous guidance of $2.35 to $2.50 per diluted share and to fiscal 2013 adjusted income from continuing operations of $2.45 per diluted share. Our updated guidance is based on a total sales increase of 1% to 2% and comparable store sales up 1% to 2%.

Based on what we know today, we expect CapEx in the range of 100 million to 105 million and have lowered our depreciation estimates to be in the range of 118 million to 120 million. We now estimate opening 24 new stores in fiscal ’14 and closing in the range of 60 to 65 stores. This compares to prior guidance of 30 new and 50 closings. We expect this level of financial performance would generate approximately $250 million of cash flow from our U.S. continuing operations or $80 million above our prior estimate. This increase is principally due to lower inventory and lower cash tax payments due to the recognition of certain U.S. tax implications related to the wind down of our Canadian operations.

The merchant and planning teams or BPARM teams as we call then have managed inventory very well and made progress sooner than we would have planned, correspondingly we now expect inventory turns of approximately 3.5 times and to end fiscal ’14 with inventory levels well below LY.

So with that I’ll turn the call back over to David.

David Campisi

Thanks TJ. Before we take your questions this morning I want to share a few closing thoughts. In Q2, we continue to make transformative changes to our company and in the quarter we had a number of significant accomplishments that are worth highlighting. First, we successfully completed the sell through of the edits and exits that were part of our edit to amplify merchandising strategy. The sell through was completed as planned in both terms of timing and the financial impact. With this activity behind us, we’re now focusing intensely on our assortment planning for the amplification of our categories. We continue to roll out coolers and freezers. We now have them in approximately 650 stores and remaining on track to be SNAP and EBT eligible for approximately 725 stores by October 1st.

We completed the rollout of furniture financing ahead of schedule to 1,300 stores across the country. The program continues to deliver incremental sales of 9% to 10% in furniture and has been expanded beyond just the furniture category to higher ticket items in seasonal and hard home. And with the completed rollout we are now able to use broader, more national channels of advertising to raise customer awareness. We delivered excess cash to shareholders by completing the March 2014 share repurchase authorization and announcing a quarterly dividend program, the first in our company’s history, and paid our Q2 dividend near the end of July. We hosted our first investor conference in over a decade. It was here in Columbus and it included an opportunity for you to meet and interact with many members of the Big Lots team.

We also walked our Polaris store which has a merchandise layout that is more representative of where we want to be in the future. In short, we did what we said we were going to do and more and delivered results. Based on this list and I assure you there are many more accomplishments that I did not mention it is clearly not business as usual here at Big Lots. None of this could have happened and been achieved without the complete team effort and a working cross functional team. I could not be any more proud of this team and their commitment to Jennifer; we are one team with one goal and Mike and his team in Human Resources have done a wonderful job making sure we are focused on our single biggest asset, our people.

I want to thank all of our associates in the field and in the distribution centers and in our corporate office for their hard work, dedication, willingness to change and uncompromising drive for improvement. As I look forward to Q3 and beyond, we continue to focus on Jennifer and what is most important to her when shopping at Big Lots. The improvements in our product assortments that you can see today in our stores for back to school and our recent food expansion are real time examples of how we are staying relevant and top of mind with her. And I believe she will notice a difference in our holiday offerings and Christmas Trim, soft home and giftable products across the store.

I have been working along with Rich and the merchant teams on our holiday plans, and I think the preparations this year are better than ever. The components of quality, brand, fashion and value are evident across the store. From a marketing perspective Andy and his team have new holiday strategies for the 360 consumer engagement ranging from print to digital and TV to our relatively new entry into social media. And I believe our advertising plans have never been better, so what lies ahead of us, store execution. Lisa described it at our conference in June as revolutionary for the stores. We have a new focus on Jennifer’s shopping experience and the team is early in the process of implementing our standards that will help us deliver on our vision of providing an outstanding shopping experience for Jennifer.

The Christmas holiday is critical to our success and we know we have teams in our stores and the distribution centers that we can count on to deliver a great holiday. My final closing thought for the day is in regards to our strategic planning process. And specifically this cross-functional team involvement that was described at the investor conference. Our KRA teams involve well over 100 people who in addition to their day jobs remain laser focused on the longer term strategies and process improvements embedded in the plan. We know where we want to be this quarter, next quarter, next year and the year after that. And these team are ensuring we stay on pace towards reaching our goals. We have covered a lot of ground over the last 16 months. We’re truly at the beginning of the beginning.

Andy Regrut

Laurie, we would now like to open the lines for question at this time.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions) To ensure that everyone has an opportunity to ask a question we ask that you limit your questions to one per phone line. And we’ll go to Brad Thomas with KeyBanc Capital Markets.

Brad Thomas - KeyBanc Capital Markets

Thank you, good morning, and let me say congratulations on continued improvement in the business. My question would be around the gross margin, was encouraged to see the results this quarter. I was hoping you could talk a little bit more about the puts and the takes in the quarter and as we look forward beyond mix what some of the opportunities might be for you?

Tim Johnson

This is TJ. I’ll start and certainly ask David to chime in. What we were encouraged by in the quarter Brad was continued strength in particularly in our soft home business which as you know is a higher margin business. We were favorable or very encouraged in the way were also able to sell through on the seasonal side of our business lawn and garden and summer in particular coming off of a little bit of tough external and whether in the first quarter we were cautious coming into the second quarter, how we would be able to move through that product, but I think the team did an excellent job of monitoring pricing and sell through and the source teams did a great job of making sure it was front and center so that we could get credit for some of the pricing action we were taking. So I would suggest to you that if there was any bit of positive good news in the second quarter allowing us to deliver a flat rate it would be predominantly in those two areas.

Looking forward in the third quarter again we have just finished what we think is a very impactful reset in the food area. This is the end result of what began back in the fourth quarter where we began to edit to amplify process and exited certain businesses that we’ve now been able to consolidate and offer up space additional space to the food department and we’re very encouraged at the way that that has started off here in the third quarter. So as I mentioned in the prepared comments we expect double-digit comps in food in the third quarter clearly that has some level of mix impact on our business particularly here in the third quarter Brad as you know from following us for a long, long time, third quarter is a bit of a unique quarter for our business in that food and consumables in particular are at their peak in terms of penetration for the business. So that’s really what’s having a little bit of an impact on the mix here in third quarter.

Additionally third quarter is also a low point in the year for penetration of business in our seasonal category or a higher margin category. So really when you put those two things together then you understand that we’re trying to learn from the past and not put too much pressure on the short fall selling seasons and seasonal, that’s really what’s contributing to the rate coming up a little bit short to LY in third quarter. Again this is consistent with what our merchants have planned all along. The cadence of this activity is consistent with what we have forecasted from a financial standpoint. We’re right on track and doing what we said we were going to do from a transition standpoint and changing out the store.

Brad Thomas - KeyBanc Capital Markets

And if I could just follow up in the first quarter there was a pretty big drag from markdowns associated with exiting products as part of the edit to amplify strategy. Could you quantify the magnitude of drag in 2Q and what you think will happen in 3Q?

Tim Johnson

From the edit to amplify the markdown impact in second quarter was nowhere near what it was in first quarter, again which allowed us to have a little bit more level playing field to last year, looking at the margin. The edit to amplify or the exit category impact on markdowns that we started in fourth quarter is behind us in the spring season consistent with what we said we would do so there is really no lingering impact from those markdowns that started in fourth quarter.

Operator

We’ll go next to Peter Keith with Piper Jaffray.

Peter Keith - Piper Jaffray

Hi. Good morning everyone and congrats from me as well. I just want to follow-up on the edit-to-amplify, more on the sales impact. Is there a way you could characterize how those two categories maybe had a negative impact on comp for Q2?

Tim Johnson

Yes. Peter if you look at the -- I will say the sum total of those businesses, in round numbers, if they are in the range of 15% to 20% of the business and comp down mid teens, I mean that’s the simple math. So there is a couple point drag in the quarter on the edited categories that began back in fourth quarter. Again, we’re still up against that volume some volume in third quarter we’re up against volume in fourth quarter, we’re up against clearance volume in fourth quarter in each of those categories, all of which was contemplated in our plans and our guidance since the beginning of the year. So there really have been no surprises in that perspective, I don’t know if David, do you…

David Campisi

Yes. No I would just add to that Peter that, we were as I said earlier very pleased with the sell through of the exit categories and really when I talk about we’re now in the amplification stage of that even in second quarter to a lesser degree more so in third and fourth quarter. The go-forward businesses we will continue to challenge our assortments and edit as well as we move forward but honestly I can’t tell you very, very pleased with the sell throughs. And again in the second quarter we all know in retail June was a difficult month for all of us. And we came out at June and with some very strong momentum in July and so I would just tell you that the sell throughs in July versus June were significantly improved and they continue to move in that direction.

Tim Johnson

Yes. And that’s a pretty important note, so we’ll get ahead of the question that’s probably coming somewhere in the Q [on the cadence] [ph] during the quarter. I’d characterized it this way, we put up a 1.7% comp in the quarter which we’re very pleased with second consecutive quarter of comping after two years of not. So we’re very happy with where the second quarter ended and we’re pleased with where the third quarter has started. During the second quarter May, as a month actually comped above the quarter at 1.7. So May was above, June was relatively flat month for us, I would tell you though we have, we think pretty good competitive information available to us and we actually think from a trend standpoint we probably fared a little bit better in the month of June than maybe some of competitor set.

And then July for the month comped above the quarter as well. So that was kind of the cadence during the quarter and today that’s the point, June being the more difficult month of the quarter, we’re still relatively flat. So we’re very pleased with the second quarter. We’re very pleased with coming out of July into August particularly some of the good sell through that we’ve seen in back-to-school not necessarily the stationary side of the business but looking at really the quality, brand, fashion, value categories particularly in furniture and soft home. It’s really clear to us when we walk the stores that Jennifer is giving us credit for some of the early changes they have been made in assortment by the merchant teams.

Peter Keith - Piper Jaffray

That's very helpful. I did want to ask just one quick follow-up for modeling purposes on that edit-to-amplify, so if it is 15% down on 15% of sales, so it's about, maybe a 2% comp headwind in the second quarter. Does that dynamic continue in Q3, Q4? Does it maybe get even worse because those categories do mix up a little bit in the back half of the year?

Tim Johnson

It probably gives us a little more headwind in the back half for the year Peter, that’s really good question, maybe not so much in third quarter as fourth quarter. If you think about particularly some of the classifications that we’ve downsized or exited in electronics you’ve followed us for a while so you’ll remember a couple of years back we had a bang-up holiday in electronics, in tablets in particular. We did I’d say okay in that business to slightly down last year, but there is still real dollars there that we have to comp, either within those categories or more likely in the amplifier parts of our business. So to your question, I’d suggest the headwind is probably a little bit bigger in fourth particularly in electronics and remember we came out last December and told you guys that we were going to take some pretty significant markdowns in December -- in January to start and obviously we did some volume and did some good work liquidating that merchandise and driving some volume in the fourth quarter of last year.

David Campisi

And I would just add to that Peter that TJ is right about what he just said as far as the headwind but I would also tell you that there is a different approach to how we buy as we said at the Inventors Conference in June. And in the past, we would have either had a big close out that we didn’t comp or we had a big clearance activity that we didn’t comp. The due approach to how the BPARM teams act and how the GMMs and Rich and his team plan with Lisa’s planning team is a very different than the prior let’s say 10 years or so. And I am very, very confident in both third and fourth quarter especially the fourth quarter and the product offerings in the assortments. We have our store within a store here in our headquarters and bringing in all the regional vice presidents from across the country a month ago walking those sets and showing and the power of the product offerings and the power of the marketing strategy. I am more than confident we can offset more than the headwind that we are talking about.

Peter Keith - Piper Jaffray

Okay. But those categories do look much better, so it sounds like just sort of short-term headwind that goes away by 2015. And thanks a lot for all the feedback.

Operator

And we will go next to Paul Trussell with Deutsche Bank.

Paul Trussell - Deutsche Bank

Just a question, you’ve given a lot of good color on the top line. Just wanted to inquire about the spread between the stores that have the coolers in the EBT program versus those that don’t, if you can just remind us of the difference in the consumables business kind of before and after? And the same with the furniture financing, obviously you have the 1,300 stores now all complete with that roll out. But what’s kind of the ramp up curve there, how long does it take for that customer to kind of recognize it and utilize in the furniture comps begin to turn up? And then just moving forward, now that you have a lot more penetration of these initiatives, if you can just highlight for us David, the messaging and marketing strategy going forward?

Tim Johnson

Paul let me start on the first two pieces and then I will pass it over to David on marketing. The first question you asked on coolers and freezers. I would tell you the roll out particularly in some of our larger markets in California and Florida has gone as expected if not a little bit better in those two major markets particularly given the population density et cetera around those stores those have turned it very, very well. We’ve also expanded it to Ohio, Texas and a handful of other state. I would suggest to you that our initial go-in for this year based on our test results last year had us comping up 1% to 2% in those stores incrementally particularly in the food categories, and to a lesser extent consumables and the balance of store.

In the aggregate we are still pleased with what is happened this year in coolers and freezers. It was the right decision for our business, we had that validated in the spring season, we will do a handful of more stores here in next few weeks and then we take a break. In the middle part of October and the stores have been focused on delivering holiday and the ramp in volume in November and December and then we will start back up with the balance of chain that’s eligible to be completed in the January-February timeframe. So we are moving ahead as communicated at the beginning of the year and as planned.

From the furniture financing standpoint, the second part of your question, the recognition on behalf of the customer is almost immediate. So as soon as the training was completed in stores, the customer recognized the opportunity and we started funding or our partner who progressed have started funding, reach the purchase sales. So the recognition is almost immediate. That initiative has again performed exactly as we planned it. There is a surprisingly tight range of performance meaning or the inverse of that is there is very little disparity. Clearly there are some floor managers who really gone after it in very, very aggressive way because they understand the impact on their business, but the performance has been very consistent across stores and markets. So we are very confident that, that business will continue to perform very well in the back half of the year.

Additionally what’s interesting there it’s little clear to us in furniture is as source come up on their anniversary so to speak, so we have source in test mode beginning in the summer of last year as they start to anniversary that test beginning last year the business continues to perform very well. So this suggest to us again this is not a one hit wonder this is something that we can build on going into ’15 and beyond and that’s really where some of the opportunities come from for some of the marketing that we can now talk about in a bigger way.

David Campisi

So Paul on the marketing, can you tell me repeat the question you had on the marketing strategy?

Paul Trussell - Deutsche Bank

Yes, David, just wanted to -- just was interested in understanding better the go-forward marketing strategy now that you have a national furniture financing program, now that you have coolers of a higher penetration of coolers -- you have the increased assortment of branded products. So just interested in how we might see changes in the circular. I recently saw a commercial. Just if you can reiterate what that go-forward marketing strategy is?

David Campisi

Sure Paul. So a couple of things, the circular obviously is a piece of the marketing strategy and I think two weeks ago we came out with the front cover was all food and consumables product really launching the new expanded assortment in food so that’s one attempt. The other thing that you maybe referring to is we launched in August Andy’s team along with our marketing OKRP we launched four viral videos on the secret top brand alert and those four viral videos that you haven’t seen and you guys should watch them are funny but the impact that they have on the business is pretty significant. And as we continue to plan that social space we’re seeing real movement out there into meaningful. And then secondly obviously you mentioned the television piece of it. We’ll continue into the back half of the year with some really fantastic exciting TV spots at this OKRP and the Andy’s team has been able to hit on something that it varies to all the works in that setting a little bit of humor to your marketing approach and it’s working very well.

And what you’re going to see is move into the back half October, November is incredible marketing from a signing point of view and a Christmas campaign that I can’t let the cat out of the bad guys but it is best the class. And along with that what’s happened is the merchants have done such a great job of being able to do five for $5 in pet three for 10$, so it’s allowed the marketing team to build a holiday campaign that really-really plays off of the compelling value we have out there on our product. So again, marketing is also the in store execution piece of it too.

Paul Trussell - Deutsche Bank

That’s helpful. Thank you.

Operator

And we’ll go next to Matthew Boss of JPMorgan.

Matthew Boss - JPMorgan

Good morning. So as you think about the inflection that you are seeing on the top line, are you seeing a new customer in the store, increased conversion, or a little bit of both? And then any changes by category that you are seeing as it relates to this?

Tim Johnson

Matt, this is TJ. I think it’s difficult for us to really answer that question fully. I think from our perspective anyway we have customers shopping our store every day. We have traffic coming across the threshold every day and our job is to convert them. And I think that’s where candidly some of the new initiatives with furniture financing in coolers and freezers. While I think there is probably an opportunity there and we are attracting some of those new customers I think probably the predominant amount of the impact is just us taking down barriers and convert customers who probably have wanted to shop our stores and just we haven’t been able to either take their form of tender when it comes to SNAP and EBT or having offered financing that was either affordable to them or something that they could qualify for.

So I think in each of those respects while there is a new customer on it more than likely we’re converting customers who might have been shopping elsewhere, so taking a little bit of share back after years of not being able to do that. I think this is the finance guy talking here from a marketing perspective. I think the work that Andy and his team are doing from a social standpoint and really kind of from edgy TV et cetera is the opportunity to maybe introduce some people or reintroduce or reenergize them about coming back into Big Lots. Additionally David has been very local with the leaders group about really getting the word out on our own and word of mouth not just here in Columbus but across the country from our stores team is pretty important too.

David Campisi

And I would just add to that Matt that again as I said we’re still at the beginning and the beginning I mean if you think about 15-16 months ago where we were and we are today -- it’s pretty powerful got momentum. But I would just tell you that as far as knowing new customers you kind of look at what we’re selling in the box and the improvement in the quality and the fashion side of it I said many-many quarters stop buying and we’ve done a pretty good job of stopping that and the taste levels improved significantly. And so it is my hope that we’re attracting new customers but again we’re so early in this turn around that it’s going to take time as TJ said word to mouth is the most powerful form of marketing. We discovered that we need to get those viral videos out to our 38,000 associates out in the field, so that they can share those with their friends and family. And I think it’s just one of those things where it’s going to take time but I believe that we can take share we can take a higher level customer. We can also get that snap ET customer who was not allowed to shop in our food departments for all these years. So on both ends of the scale it is our belief that we will attract new incremental customers in our stores.

Matthew Boss - JPMorgan

And then can you just talk about the opportunity from a vendor perspective, any recent new brand introductions and categories that you have?

Tim Johnson

It’s a great question Matt and I would tell you that we’re very focused and that’s a big one for Rich and his team. We obviously we buy from way, way too many vendors and when you look at the number of vendors and then the top 100 driving significantly high penetration of your total sales we’re razor focused on the big guys and having talks with them in some cases I am involved and some not. But with the big guys definitely I am involved in building bigger and better relationships and the exciting part of that and what’s happening on the vendor side is they’re hearing good things, they’re seeing significant improvements in our stores albeit we’re not satisfied, we know we can do better but it is improving.

And with that being said they’re coming to us wanting to do more business and they used to. And some of the candidly is they didn’t want the product in our stores because of the way we used to present it, merchandising just throw stuff on a shelf today, our stores are much more edited and they’re able to really put the product out because of our focus on the QBFV side. So again I would just tell it’s very, very encouraging to see the big guys in here host of CEO was in here last week and wanting to build the business to higher levels and those are meaningful conversations and it’s not just in the food area, it’s in the furniture business.

We have a solid, solid relationship with Serta and our belief is we can take that business to a much, much higher level and it is out today and they want to partner with us. So yes it’s a new time for our company with the Big guys and they’re no longer embarrassed to see their product in our stores which is a great thing.

Operator

We’ll go next to Patrick McKeever with MKM Partners.

Patrick McKeever - MKM Partners

Just a couple of quick ones, the first is, are you seeing any pressure on your shipping costs from some of the trucker shortages that have been mentioned by some other retailers? The other quick one was, do you have any -- your inventories are pretty lean here, do you have any concerns about possible disruptions at the Port of Los Angeles and are you doing anything just to mitigate any potential disruptions? Dollar General mentioned that they had brought some holiday inventory in early and I know it's not like in prior years where that has been a bigger threat, but nonetheless it sounds like there have been some issues. And it sounds like there could be some more as we move closer to the holiday.

David Campisi

Patrick it’s David, I’ll take the question and turn over to TJ if he’s got more to add. But the shipping cost for us, they’re not significant. We haven’t really felt anything that would cause us for any alarm in that area. I would tell you that we have in that group under Carlos’s leadership a very solid group of the guys that understand how to get product from Asia through the port of LA and into our distribution centers, but how to get product to our stores at a very efficient costly way. So we monitor that obviously on a daily basis and his team does a fantastic job. No issue there.

And as far as the inventory piece I would tell you that forever I mean from probably day one Lisa and TJ were always telling me that we need to spin our inventory faster and I think you know Patrick from covering our company for many years that you have, from a sales per square foot point of view and in inventory terms we’re not best in class. So we certainly believe that we have much upside, we’re not concerned at all with those inventory levels because where they are or where they need to be a lot of those are in the exit categories.

And obviously in that inventory numbers there is a little bit of Canada and a few changes in how we manage some of our vendors as well but we’ll continue to drive that inventory down over time because our goal is to be best of class in inventory terms. And that’s what happens to guys is that when you clean up your inventories and just stop buying stuff and you start buying real products and with the though process behind it, you spin your inventory faster our sell through in some of the home categories for back-to-school phenomenally with double digits every week and that’s what we need to have, that’s the expectation, so no concern there. And lastly, we really haven’t, I mean we’re all over the LA thing and monitoring it very closely. And Carlos updates us weekly, but we felt like we, whether the storm there quite well and are not feeling anything at this point in time and we do have a backup plan. So I think we’re in good shape, TJ anything to add to that?

Tim Johnson

No, well said.

Patrick McKeever - MKM Partners

And then just a little different question on e-commerce and I realize e-commerce is very much in the development phase for you right now. The question is really, though, as we look into the holiday, I mean it just sounds like it's going to be just -- I don't know what the right word is but just pretty darn intense in terms of free shipping and you've got the big guys that are really, really making a very aggressive omni-channel push around the holiday. So the question is, as you are developing your own e-commerce platform, it's obviously not going to be done by Christmas, so what do you do this holiday to mitigate some of those pressures?

David Campisi

Well, I would tell you. Right, we’re in the very early stages and I think before when we had our investor conference, I don't think Oscar was here yet, I think he just joined us like a month ago, so we have a new VP over ecommerce and this guy is talented, he knows what he’s doing, but along with Andy and his team from a social point of view, we have a website obviously you can’t buy on that website we use it in a big way from a marketing point of view and I didn’t tell that to, I think it was Paul was asking about that but that piece is very powerful and it doesn’t attract a ton of consumers who are looking at our website for product and so on we have a lot of offers that go out the email. And so we will continue to use it, to hit it hard with offers and showing products and value during the fourth quarter.

Obviously, we understand that there is pressure there on all those guys in that space but something that we deal with and have dealt with for a long time. We know that’s a significant opportunity that’s why we’re deep into the beginning of building out in ecommerce omni-channel strategy. But our plan is to go into the quarter and hit the social piece hard and then hit the email hard on a very frequent cadence as we build through the quarter. And candidly, I don’t know if Patrick could we have looked some of those emails and if you see the quality of the execution versus the past, I mean there’s very, very different and Andy will tell you the number of Jennifer that go on that and look at it and open those email is pretty significant and well, lot of the research that he has done as well tells us that she is certainly using and shopping online and he wants us to have that offering and that’s why we are going down at that.

Tim Johnson

And Patrick, I’d just add to that. Certainly it’s going to be competitive in the holiday season we all recognize that, certainly there are more and more retailers flexing in e-com and omni-channel we realize that. But what we also realize is we really need to stay focused on our Big Lots strategy and doing what we do best. And that’s a product and when you see the seasonal product and the home product in particular for holiday you will recognize a difference to last year and the years gone by. So I think to my earlier point we have a number of customers they come across our threshold each and every day and really product is king in our business and what the team has put together for holiday along with all the marketing efforts. And the new energy that significant new energy coming out of my Big Lots meeting last week from a stores perspective. We think we are absolutely driving as hard as we possibly can towards the holiday selling season. So there’s a new energy behind holiday and what we’re trying to execute then maybe we’ve ever done before.

Operator

(Operator Instructions) We’ll go next to Meredith Adler with Barclays.

Meredith Adler - Barclays Capital

Thanks for taking my question. I have two questions. The first is, just talk a little bit about foreclosures and you do seem to have closed more stores than you had anticipated. Could you just talk a little bit about, sort of, how you are thinking about that?

Tim Johnson

Sure, Meredith. We are anticipating more stores closing to the 10 or 15 more stores than when we started the year. The reality of the situation is we’re looking at our store performance we’re looking at our position in the market place. We understanding better our landlord relationships and putting that altogether and valuating each store that comes up on renewal. The first point I would make is the incremental amount of store closings. The stores that we are looking at, the 10 to 15 extra, does not necessarily mean those stores are losing money or not generating cash. In fact, I think of the incremental stores that we are closing there might be one store that is cash negative. So this is not representative a chain that we have a lot of money-losing stores or a lot of cash negative stores, the reality is we don’t.

But what we are looking at is really coming across renewals, in this environment today and this may surprise some people that occupancy level out there in retail in box as our size is very high right now. So the inverse is there is very few open locations for us to move to. And additionally given the occupancy levels so high in our size of box, the landlords are much more firm on rent steps in pricing than maybe they have been in the last few years.

So when we look at a store on renewal and if it’s a store that, stores generating cash but might be comping down, we are looking at the market in total and saying where do we have opportunities in the market, can we replace some portion of this volume and move it to a nearby comp store or a nearby new store that’s going to be opening to make the overall market profitability stronger, that’s really the focus.

And what’s come from that is an incremental 10 or 15 more store closing than we originally anticipated at the beginning of the year. We feel very good about the opportunity through merchandising and marketing and the stores team, the cross functional effort to try to make sure that as we close stores in the fourth quarter, we move as much volume as possible to nearby comp stores, again increasing the overall market productivity. So we are not of the mindset to manage to a certain number of new stores in a year or a certain number of closings that at the expense of making a bad decision of a short term decision that we might regret later. So we are very comfortable with where we are from a real standpoint as we end this year.

Meredith Adler - Barclays Capital

That sounds great. And then just switching gears, a question about -- you talked about third-quarter seasonal, and I think how we might have been a good holiday for you in the past maybe that's not true. Could you maybe talk about -- it sounds like you are really deemphasizing it, maybe talk about why that is, is the volume shifting elsewhere, are people not shopping?

David Campisi

Yes. Go ahead Meredith, finish your question.

Meredith Adler - Barclays Capital

No, that was it.

David Campisi

Okay. Well I will take this one and then maybe TJ can pile on a little bit since he has been here for 16 years, whatever it is. I would say both of those, the Halloween and Harvest categories have been down trending in the industry for quite some time and for us, it’s a business. It’s not there, it’s just one of those categories, it’s down trended. In the last few years, we’ve had to take significant markdowns the clear that inventory. It’s a short season you go in with a high margin but you don’t necessarily come out with one at the end game. So we made a conscious decision to this year is to plan both of those categories down and ship those dollars to fund businesses that are working for us like the home, like the food area, like furniture.

If you look at those three businesses food, furniture and home, those are the three targets as we move into the back half, not that the other categories aren’t important but those are significant and we made that decision to get in and get out so to speak, so we can set holiday right after the end of September basically. I mean we got a little bit of early stuff out there and in a very, very, very small way. But it’s just not an important category that we -- and again I talked earlier about editing in those categories even with on the floor today, we will continue to edit pieces of it when I call the arts and crafts piece side of it that we don’t need to be in. And again as I said before, very thoughtful by BPARM teams, Rich and Lisa's teams, to ensure that we plan that down but we have an offset strategy, and we do.

Tim Johnson

Yes, Meredith, it has been a tough business for a number of years and particularly in Halloween and particularly in I will call it early Christmas selling the customer waiting later and later each year. We’re trying to reflect the learnings from last year in our plans and guidance for this year. I do want to clarify one thing though and David may want to chime in here. When we are talking about Halloween, we are talking about things like costumes, outdoor decorations, things like that the more discretionary piece of our business. One area of the business that is not reported in Halloween that we do feel very good about going into the back half of the year is candy and seasonal candy. So under Trey and Mike Morales's leadership, we’ve brought in a new buying resource there and we are already seeing improvements in that business with new deliveries. So we feel very good about that piece heading into the back half of the year. But what we are really talking about from Halloween perspective that is down trending is more of the discretionary or outdoor or a costume side of the business.

Meredith Adler - Barclays Capital

How does the margin on the Halloween candy compared to the margin in food more generally?

David Campisi

I am sorry could you repeat that?

Meredith Adler - Barclays Capital

How does the margin on Halloween candy, or candy generally, compared to the rest of food?

David Campisi

Compared to the rest of food is probably pretty similar I guess it to the extent we’re buying it on close out there might be a little bit of opportunity there. But that’s all factored into our forecast and guidance and as you know food in particular is going to be a little bit below the company average and margin rate to start with.

Meredith Adler - Barclays Capital

Right, well, thank you. Excellent consistency, it’s great to see.

David Campisi

Thank you, Meredith.

Operator

And we’ll go next to Joe Feldman with Telsey Advisory Group.

Joe Feldman - Telsey Advisory Group

Hey, guys. Also offer some congratulations on the quarter. I wanted to ask about the store execution initiatives. I recall from the Analyst Day and you touched on it a little here, a lot I recall was around training and maybe just getting some store standards more consistent across the board. I was hoping, Dave, maybe you could talk a little more detailed about it and what we should expect over the next maybe six to 12 months? I assume it is more of a 2015 initiative that will really see changes?

David Campisi

Thanks Joe good question and it’s actually we’ve spent two days with the Board and Lisa and Nick presented a pretty powerful strategy on stores roles and responsibilities and where we’re at and where we’re going and so on and how much time our store managers focus on past versus customer service and so on. And you’re right we’re at the beginning of the beginning and this one is big. But I would tell you and I am excited to share a couple of things with you because we’re really razor focused on the stores.

And we know that what we’ve created here in the corporate office is powerful with a lot of energy and momentum. And we believe that we’re on the path to do the same thing in our stores. And we just announced last weekend at the My Big Lots meeting where all the district managers were here for three days that we’re getting rid of that word manager and the manager is now the store team leader and it goes all the way to the top where it’s not just the store team here but it’s the district team leader. So we’re focused on a different approach to how you lead in the field versus managing. And then from a process point of view it’s so big that I would have to spend a few hours with you just to explain to you what Lisa and Nick and his team are off to the races doing the developing everything from guidelines on national guidance for store leadership schedules we’ll be implementing it right in ’15 more automation to that but it really is a big project rolling out an online application system versus I kind of laugh when I say some of these things because it’s an amazing-amazing thing that we do the volume we do with some of the lack of processes and disciplines in our stores.

And so the thing that’s great is it was so well received last week by the DMs and the Regional Vice Presidents but everything from labor scheduling has become automated. We’re doing the test in a few stores to ensure that it’s done right. We’ve looked at it so deeply and the ahas and what we found out about how we operate in the stores we have huge upside there and developing the latest scheduling. So we will do a pilot this fall in 25 stores with the full rollout in ’15. What we call dock to stock we’re engineering at the back room so that when the stores receive freight they’re going to do it efficiently let’s put it that way we’re redesigning the back room flow as needed to maximize an efficiency because we want our folks on the floor taking care of customers and we’re adding new equipment and I think TJ we’re spending 1.6 million on replacing some of the handling equipment in our backrooms to make it easier on our stores.

Again as you go through the whole metrics we put together productivity goals for the stores and measurements that they have big signs in the backroom that similar to what we do in our distribution centers that measures how much is on load five day versus the last week, two weeks ago, three weeks, and what that does is it creates competitiveness, excitement and we talk a lot about people, pride and passion in our stores and giving them just like we gave the merchants QBFV, ECRS, all those things to help to do their jobs better, we’re doing the same thing in our stores. So a lot of our automation, a lot more to that and I am sure I’ll get the opportunity again in front of you and give you a little bit more on that.

Joe Feldman - Telsey Advisory Group

Got it, that’s really helpful. Thanks. I’ll leave it there lot of my other questions were answered. Thank you.

Operator

And we’ll take our next question from David Mann with Johnson Rice.

David Mann - Johnson Rice

Yes, thank you. Good morning. Nice job, guys. Question about the couple of categories that are the edited categories, I'm just curious, were those categories on plan in terms of the remaining subcategories that you are emphasizing? And is there possibly an opportunity to edit those even further to take advantage of the strength in the other areas that you’re amplifying.

David Campisi

Well I would tell you that yes there is two things, one is what we call the exit categories where we’re not carrying plumbing tools and toilet seats and it’s a pretty long list of stuff. That product is gone and will never be in our stores again. And then the added categories, let’s take electronics as an example. We exited TVs and for the most part the tablet business unless there is significant opportunity put in front of us. And then we said we’re going to go after and we’re the accessories business and electronics. And if you look at the new reset and we’re pretty proud of the way that looks a new packaging new sign but there is significant editing that is going to continue in there and we did added not only just a skew count but the vendor structure in there as well. And we’re starting to see the payback.

But as you navigate David through the store and you start looking at the home as an example even in furniture in some cases we feel like we can continue the edit and amplify categories that are really working. And along with that do some testing and have some courage to step up some of the price point offerings as well. But what we’re at with the stage we’re at today is we’re done with exits, we’re now looking at all the go forward categories, whether that was food or consumables, furniture, home, part home as well which is an important part of the business that we really haven’t talked about, when you talk about table top and appliances and so on in that area is actually performing nicely. And we will continue to edit in there, Bob’s team is doing a great job.

You’ve got a much bigger challenge in front of him just because of all the exit categories. But the real key for take away for you guys is our belief is now that we’ve edited and exited, we’re going to go back there and do what we call SKU rationalization, right. So even in like a great business that we have in seasonal in the spring with lawn and garden we’re going to continue to edit as an example and then we don’t need to have 18 SKUs of grill brushes. And so what we’ll do is take that down significantly and amplify it. And that’s edit-to-amplify means. Edit to offering, but own it in a big enough way where the customer goes, okay I get it. So that’s really where we’re at and TJ if you have anything?

Tim Johnson

I think David in fairness in particularly in art home and electronics and accessories as David mentioned. The elements within those categories that are go forward, so the non-exit parts. The team has done just as good as job as the balance of store in terms of doing exactly what we said we were going to do. So to David’s point table top and food those businesses are up to last year, those businesses are driving incremental volume, the QBFV is well there and doing very well.

So similarly in parts of electronics and accessories the go forward parts of those categories the teams are executing, they’re delivering on what we’re asking them to do and then delivering the volume that we anticipate. So even though the total category on the face is down there are good parts of the business within those categories that are executing all of this different merchandising principles that Rich and Lisa are asking them to and delivering on their plans as well. So those teams are performing also.

David Mann - Johnson Rice

As my follow-up just a couple of quick things, on the cooler rollout in terms of the halo effect to other categories, I think you made some comment but could you elaborate a little bit more on that on whether you are seeing an increasing attachment rate to other categories? And then one housekeeping question, on the increased free cash flow for this year, does that change your longer-term three-year target of $550 million to $600 million or is that just a timing issue of getting it a little sooner? That's all I had.

Tim Johnson

I’ll take the second part of the question first. The cash flow is more focused on items that are unique to this year. So first things first the inventory clearly articulated at the investor conference, we thought there is opportunity to spend our inventory faster. I would think about this David as getting the results quicker than anticipated and if it ends up being incremental to the 550 to 600 good for us. But right now we’re thinking of it as, we’re getting it sooner than anticipated again that’s all due to the performance of the BPARM teams and additionally the tax favorability with lower tax payments this year again we felt those would occur during the three year period, it just wasn’t clear to us it could be getting in the year when we would be comfortable with it or comfortable with it now. So again I would think of that as pulling forward or recognizing earlier than anticipated some of the cash flow opportunities in the business.

The first part of your question as it relates to coolers and freezers. I would suggest to that the attachment rate the filling out the basket has been more focused in food, because that is where SNAP and EBT are most utilized or can be utilized to a lesser extent in consumables and then to a lesser extent in the balance of the store. I still think today, this point earlier. The opportunity to shatter a little louder that we now offer this type of product the opportunity to shatter a little louder that we now take those firms of tender is still ahead of us. And we’ll see if we can expand the reach to the balance a little more from a merchandising standpoint. But again, in such a competitive environment taking down those barriers was really the upfront goal and we think we’ve been successful there.

Operator

We’ll go next to Jeff Stein with Northcoast Research.

Jeff Stein - Northcoast Research

Good morning, guys. Two quick questions, first of all, TJ, on the buyback authorization, historically Big Lots hasn't been bashful about executing the buyback after they authorized. So I’m wondering is the plan to do the buyback over the balance of this year and have you factored that into your updated guidance?

Tim Johnson

Second part first. It is not included in our guidance. First part of the question we work with Phil Mallott, our Non-Executive Chair and David and I along with Jared our Treasurer and we’ll say what we believe are reasonable ranges in terms of value and valuation of where we’re performing and price and we’ll make a decisions. We’re not on a timeline Jeff, this is not have to be executed this quarter or this year, but really after spending two, almost two full days with the Board and then spending time with the entire management team, walking store, seeing products and understand where we were in the strategic planning process. They walked away as confident as we are that we can deliver the balance of this year and that putting extra authorization out there in the event that something happened in the market or we didn’t feel the stock was appropriately valued, we could be there to support it. This is extremely consistent with the message we gave back in June at Investor Conference and it’s absolutely part of, and consistent with those strategic plan. I do think that it is important to understand, even let’s assume for a minute the authorization is executed here at this year, we would still end the year with, I’ll call it minimal amounts of debt on our balance sheet in that call it $50 million plus or minus. So we absolutely believe that the cash that we’re generating this year our commitment is to return we’re leaving up to it.

Jeff Stein - Northcoast Research

Great, thank you and David, quick one for you. On furniture financing, I'm curious how you are communicating to customers that they can use it to buy other categories, other items for the store? Do you have signage up? And is it enough, I guess to be a needle mover on a go-forward basis?

Tim Johnson

Hey, Jeff this is TJ. David has got a little bit of cough right at the moment. Let me try to start there. And what I would suggest to you is we’re doing a much better job getting out in front of it, so for instance we’ve already identified parts of seasonal with our partners at progressive that would be eligible for financing going into the holiday selling season. We are signing it, I have sign it in categories that we’ve added to, something is quick to respond as air-conditioners in the July, August timeframe we added the furniture of financing. So we are signing it in store, we are trying to plan ahead and have those opportunities ready going into holiday. The benefit we have candidly in furniture that we don’t have in the balance of store, where we offer financing as we do have dedicated associates in the furniture area that are knowledgeable the program they’ve been trained on the program. And are there to answer questions and how to sign up in the balance of the stores, as you know we don’t having selling payroll model so it does, it is beholding on signing but we’re trying to do our best to really shut out that opportunity. Going forward I guess we have the opportunity we can potentially even do in front of, which is to do so on certain categories, but it was helpful in spring. I would say we acted to it and we’re much more planful going into holiday, identifying those items upfront. So hopefully it will be even bigger part of our business.

David Campisi

And Jeff to add to that and I apologize for the coughing.

Jeff Stein - Northcoast Research

Will it be available for the fireplaces? I knew you guys have done a big job, historically in fireplaces over the holiday selling season, so will you offer financing for that item?

David Campisi

Absolutely, and again to add to, what TJ just said to, email blast is a big part of how we’ll communicate that financing on items like fireplaces as well. So, of course we plan to offer it on another categories too Jeff, like Christmas Trees hiring Christmas Trees as well.

Operator

Well go next to Dan Wewer with Raymond James.

Dan Wewer - Raymond James

Thanks. Wanted to follow-up on the reduced store opening plans and the increased number of store closings and in answering Meredith's question you talked about the possibility of transferring some of the revenues to an adjacent location. Is it your thinking that the number of Big Lots stores in the U.S. is now the appropriate level? Rather than you’re looking at growth in the future, all of the focus now is just shifting towards higher sales per foot, higher operating margins, but does it really is not any net store growth opportunities left?

Tim Johnson

Yes, Dan, this is TJ. I guess sales per square foot, and more importantly comps and growing comp store sales is absolutely the focus of the SPP and consistent with what we communicated in June, our plans do assume that store count actually does grow down in each of the next three years. That’s based on what we know today, that’s based on the availability we see out there today and that’s based on the fact that there is to date anyway coming out of ’08, ’09, there has been very little in the way of new store construction therefore less opportunity in terms of other retailers moving and that’s coming in behind the space.

Having said that, if something were to change, we clearly have the liquidity to do more than what we are anticipating in our plans. We would absolutely welcome the opportunity of growing the store base a little faster rate. If the opportunities are there from a real estate standpoint, what we are acknowledging is the opportunities in our size box aren’t as prevalent today as they might have been three or four years ago. Again it doesn’t mean we wouldn’t step on the gas if the opportunities became available, they are just -- they are not there today. This is again with consistent with our conversation back in June at the investor conference.

The first part of your question Dan in terms of 24 new stores versus 30 in our original plan, we haven’t talked a lot about this but Dave has been very helpful in providing direction to the team and to the real estate team and particular about the type of box we want to open go forward. And I know we might be getting into a little bit of detail here but I will give an example. Two or three of the stores that we had thought we are going to open this year, when we actually get inside the box and look at them and look at how the store would have the way out and what would be asked in the store operations team, we weren’t happy with.

So we are not going to open the store. We didn’t sign the lease, we don’t have any liability but again down in the details of we want to be able to come in the middle of the store and turn right. We want our associates to have good experience in the backroom unloading trucks, we want to have docks, we want to have certain things are non-negotiable today that have not been in the past. That’s probably two or three of the stores spend that we ended up not signing and not opening this year, they were available to us, they were going to work for us.

Another two or three of the stores will slide in to ’15 because we weren’t confident we’d be able to deliver them by the end of third quarter and in to our strong preference, not to open stores in the fourth quarter, there is too much else going on in the business and with store operations team to sacrifice for an extra store to here or there, so we’ve pushed them into next year. So we’re very comfortable with where we are from a real standpoint and the openings and closings this year.

Dan Wewer - Raymond James

And just as a follow-up, I think it was probably four or five years ago when the company was growing the store base impart of the pitch to investors is that Big Lots achieved the best same-store sales growth in its newer locations and of course that’s usually the case with other retailers as well. If Big Lots' store base is not growing, do you think that's going to be a headwind to same-store sales growth? Is it the fact that the store base is getting older a lot faster?

Tim Johnson

No, I do not believe. In fact I think what we are talking about when the availability was larger and some of the other retailers had gone out of business with the opportunity for us to move into locations that weren’t available to us before in more of the A type locations or Polaris here in Columbus or others, so that was an opportunity that was unique and in time as we are learning now. But I want to go back to the first part of your question.

Our stores typically ramp actually slower than other retailers in terms of year-on-year performance in the first couple of years. So new stores to my knowledge in the 14 years I’ve been here never really been a significant driver of comp store growth in that year two or year three. That’s -- there is not enough of an impact there too to really move the needle. So it’s a little bit different model or the different approach maybe than what you’re hearing from other retailers. But again focusing on our strategy in what we do best I think the biggest opportunity for comp store growth going forward is not a real estate play as much as it is all the other elements of the three legged stool that everybody is focused on.

David Campisi

I would just add to what TJ said lastly is that -- as an example we just opened up a new store here in Reynoldsburg, just a suburb of Columbus. That’s the right way to open a store, right where we walk that store and has a door in a middle you can turn right, we have furniture in the front where it belongs. In the first three days of that grand opening or probably some of the most powerful grand opening days we’ve had in the company’s history and it’s because we are doing it the right way and you are right maybe four or five or six years ago, there was a huge ramp up to run out but a bunch of stores but there was absolutely zero process in place and thinking does the store have a door in the middle. We put barriers up for Jennifer; we put what we call it the way for her to get in and out of the stores from asset protection point of view instead of focusing in on the customer. So again we talk about Jennifer here and in the company ad nauseam, which is fantastic. But everybody in this company is focused on their chopping experience for her including all that varies that a lot of our stores currently have.

Over the next seven years, we will reposition as many starts as we can with furniture in the front of the store. And where we see the comp store growth coming out of there obviously we believe is the shopping experience it starts with product, it starts with great marketing, but the shopping experience those barriers that we have blocked here ability to shop in a pleasant way has to go away. And they will and I am telling, it’s working right now and we are seeing it and I think you know as you covered our stock for a long time.

From productivity point of view, sales per square foot, yes, significant upside. And that all starts with buying better product instead of just throwing junk in the stores and hoping that the customer is going to buy it and we say all the time and he is building hope it is not a strategy. The thing that you have to believe in and all of you guys out there, we actually have a real strategy. There is a though process on how we buy product and how we market the product and how we execute in stores, that’s going to give us the productivity, not just opening up hundreds of stores and filling with stuff, that’s just not how you run a retail business. It comes up and -- at certain point of time, the consistency is more important than just opening stores for the sake of opening stores.

Andy Regrut

Thank you everyone. Lorrie, will you please close the call.

Operator

Certainly. Ladies and gentlemen, a replay of this call will be available to you within the hour and will end at 11:59 PM. on Friday, September 12, 2014. You can access the replay by dialing the following numbers: for toll-free, USA and Canada, 888-203-1112 and entering replay pass code number 3761105. For international, 719-457-0820 and entering replay pass code 3761105. Ladies and gentlemen, this concludes today’s presentation. Thank you for your participation. You may now disconnect.

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