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Big Lots Hits Pause

Mar. 07, 2020 5:42 AM ETBig Lots, Inc. (BIG)9 Comments
Jenks Jumps profile picture
Jenks Jumps


  • Big Lots reported fiscal 2019 fourth-quarter and full-year results on February 27th. Sales improved slightly. But the bottom line on an adjusted basis declined.
  • Guidance for fiscal 2020 was equally disappointing. But the big news was the retailer's decision to slow the pace of store remodels.
  • Now, activists have established a position.

My investment thesis on Big Lots (NYSE:BIG) was based on the retailer's transformation from overstock and close-out discount retailer to a non-traditional discount retailer with a strong focus on furniture and home. Certainly, there have been pressures and challenges in that industry. Under a new CEO and attempting to infiltrate a more upscale consumer base, Kirkland (KIRK) has been weighed down by fewer sales on lower traffic and now trades in the $1 range. Pier 1 Imports (PIR) filed for bankruptcy in February. But Big Lots was looking to materialize on the market disruptions and capture share. And the plan seemed to be working...until December 15th. Potential investors must now consider whether the presence of activists will prove positive.

This transformation trail traces back to 2016. In September 2017, after 18 months of discovery, Big Lots introduced a three-year mission. The mission would require one of the largest investments since the company's inception - remodeling locations based on a "Store of the Future" format.

"The layout of the store is dramatically different from the traditional Big Lots by featuring Furniture front and center in the store with Seasonal and Home also at the front on either side. Pantry - which includes Food and Consumables - is located in the back of the store, but is clearly visible from the front of the store given the low-profile of our Furniture assortment."

But the timeline was delayed when the new mission's champion, CEO David Campisi, had to take a medical leave of absence in December 2017. In April, 2018, he retired to focus on his health.

The company announced Bruce Thorn would be its new CEO in late September 2018. Not all of his initial decisions resonated with me. But he did light a fire under the retailer's plans for its

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Jenks Jumps profile picture
I am a self-taught investor. As a member of an investment club, I provide the majority of research to the club. When I started writing for SA, the club was interested in stocks offering growth at a reasonable price (GARP) and stocks that were undervalued. We have since adopted a dividend growth investing (DGI) strategy. We search for GRAVY - our acronym for "GR"owth "A"bility, "V"alue and "Y"ield. I am very interested in other active investors critiquing my research. I believe this critique will make me a better investor for my own interests as well as the club's.

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Comments (9)

@Jenks Jumps and @discountshopper, one of my preferred areas of investment in a market for all seasons, the sort that is resilient during times of financial distress, have always been the discounters. I had a position for sometime when Big dropped to the high teens last year, stayed through their second to last earnings call and took profits when they started to rise through the new year. Frankly, I quite enjoyed their earnings calls. The team appears to have a terrific handle on dealing with the analyst community and just a few short months ago really did seem on the right track. I, too, was skeptical of the pivot to more furniture. These are difficult for any discounter to get right particularly in an era when generational and demographic consumer interests are changing. Frankly, I think a look at both the hip new dollar stores (Five) to the dominant players in that realm (DG and DLTR) provides some pretty powerful insights into how crucial high volume small footprint goods are to the success of these companies. As for Big, I do wish them great success. I admire the attempt to shift gears and do hope they are able to succeed with enough of their own know how and vision intact. At heart, I want the underdogs to succeed by default. It isn't always great to hear a company realize a flawed vision and redirect their approach but, once again, I hope it works. As for the activists, I have mixed feelings. Too often, activist investors insert themselves into the change narrative for a quick buck or just for the pr without being familiar with the sort of deep on the ground character of a company, the sort that can only come from real familiarity or patronage. I will concede there are a few agents of change out there who I seem to always find myself aligned with but in this case I really cannot say.
Jenks Jumps profile picture
Expanding Universe,

Thanks for adding these great talking points.

I have to admit Five Below stores are just opening in my area. I visited at most twice during the holiday shopping season to see if they carried specific items - they didn't. I can't see myself making this a routine place to visit. I'd rather go to Dollar Tree or Walmart and would rather shop T.J. Maxx, Home Goods, Marshalls, Ross or Big Lots.

Your points on the activists is spot on for me. I couldn't see enough of a track record to give me a ton of confidence.

Good luck in this trying environment!
What's up with these high level executives? They make things complicated when it is really very simple. They think that by overhauling things - according to their likes or values - that the business will take off just like that! What a bunch of high-fallutin words to describe management attempt to improve sales! A team to advice what to do to improve sales?
Just ask me... I'll give you my opinion and advice, free!
My advice:
It is really very simple. Find out what the people who shop frequently at your store buy AND why they go buy it at your store! If you asked me, I'll say "Good prices (meaning lower than anywhere else nearby) AND good selection of available items that I use almost on a daily basis, AND good location. Period!
Did I want to buy furniture? NO! So what makes you think that if you put a furniture store or home products in front that I will buy your furniture? My god! What a stupid idea. Why? because I already have enough furniture, and I can go to real furniture stores if I wanted furniture. And you'll just make me walk farther to the back of the store where I really want to do my shopping!
This IS the reason why the new numbers do NOT reflect the results expected from all the renovations. Soooo unnecessary, and sooo out of touch. Don't need a bunch of consultants nor master's degrees to figure this out. You people cannot see the forest for the trees! Sheesh!
Sorry, I have to be blunt.... but it is honest opinion. I like BIG LOTS!
Jenks Jumps profile picture

Never be sorry for leaving your personal opinion on one of my articles! I very much appreciate hearing the perspectives of Big Lots' shoppers! I honestly believe this type of sharing helps us all be better investors.
I will admit, though, years ago, I was the type of Big Lots' shopper who only went in the store to see what type of furniture close-outs it may have. It is still not a go-to destination for me for anything. I only visit out of curiosity or if something in an ad or email catches my eye.
On a related subject, this type of action in the market may introduce Big Lots to new consumers if more become cautious about their personal spending.
Thank you Jenks for your nice reply.
For a while shortly after I posted my criticism, I felt a pang of remorse because I thought I may have been a bit harsh with my criticism (and wondered if I should ask SA mgmt to delete it) but your reply made me feel better.

Now, here's the second part of my original post.

If you were to ask me, a discount shopper, WHAT changes do I want to see in Big Lots so that I will want to go there more often, here's my answer:

I wish there's a small section of a steady supply of fresh fruits and vegetables, some meats, salad materials, baked goods, cookies, cheeses, dairy products, frozen items. AND, if you will add a small section with a steady supply of ORGANIC fruits and vegetables, I just might be there 2-3 times per week. So, instead of furniture and home products in front, make these be in front. Do a pilot test first in a few stores and see what kind of traffic you will get. And advertise the changes. Make sure people know that you have these now available. You just might see good results... hey you may even see better results than expected. But do the pilot test first.

Note: If you went to a Walmart superstore, if you're observant, don't you see that the most number of people who go there on a daily basis are mostly in the produce and baked goods section?
I hardly see anyone in the furniture section and home decor/products section. And if you find them there, take note of how long they stay in the furniture section versus the produce section. Don't need a master's degree to see the big difference.

Just my honest opinion. I like Big Lots! Actually, I bought the stock when I read that 2 activist investors, Macellum and Ancora, want to put their own people there. I wish them great success!

Thank you for reading!
Jenks Jumps profile picture

I'm so glad you didn't ask to have the comment deleted. It really sparked some thought on my part.
So, I see the furniture emphasis from Big Lots as a way to differentiate itself from Walmart and Target. I'm curious, based on what you said you'd like to see the company do, why you'd rather purchase those items (especially produce) from Big Lots as opposed to Walmart or Target? Based on Big Lots' comments in the last earnings call about shrink, I'm not sure it's set up or ready to handle produce. But, like you recommend, it should perhaps consider doing a trial in a few areas and measuring results.
Thanks so much for the discussion! With this coronavirus threat, I'm even wondering when it gets to the point that there's no produce sitting out for all to touch.
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