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Big Lots and Ollie: Why the Liquidators are Down

Thomas Paulson
Dec 9, 2022
Big Lots and Ollie: Why the Liquidators are Down

Big Lots and Ollie’s both produced another weak quarter. As suggested by Big Lots' traffic declines in contrast to Ollie’s gains (below), Big Lots performed worse on a fundamental basis and has more real estate risk associated with it. What’s going on? Difficult comparisons and the pull-back of discretionary spending by lower-income consumers are two common headwinds.

However, as shown in our chain demographics reports (newly available via the platform), Big Lots and Ollie's have similar visitor income profiles. The differences between the two, other than locations, is that Big Lots has three times the number of locations (i.e., more complexity) and its sales mix of bigger ticket items (furniture and hard home) at 38% is higher than Ollie’s. Lower- and middle-income consumers are pulling back from big ticket purchases of goods and being more disciplined in what needs they spend upon.

In terms of differences between Big Lots and Ollie’s store portfolio, grocery is only 14% of Big Lots top co-tenants compared to 18% for Ollie’s, as shown in the table below. (This data is also newly available as part of's latest product update).

One may think that the higher frequency co-tenancy is leading to more frequency at Ollie’s, but that is not the case as shown in the figure below. Big Lots produced 10% more visits per location on average than Ollie’s during 3Q22. However, given that Big Lots produced 3Q22 sales of only $835K on a comparable-store basis versus Ollie’s $916K, and Big Lots’ higher average ticket, we can surmise that Ollie’s is converting a lot more of its traffic into sales. This suggests that Big Lots’ could have merchandising issues. To that point, Big Lots recently brought aboard a new Chief Marketing Officer (John Alpaugh) and Chief Merchandising Officer (Margarita Giannantonio). Alpaugh had a tenure at PetSmart, while Giannantonio came from TJX’s Canadian business.

Key Big Lots Metrics

  • In addition to Big Lots reporting a large drop in sales and earnings, it took a store asset impairment charge of $16M for which there was no discussion or disclosure.  Furniture and soft home are the largest drags on comparable sales as shown in the chart below. Of the $160M comparable dollar sales decline, these two categories contributed $130M. Comps for 4Q22 are expected to decline low-double-digits.

  • Trailing-twelve-month sales per square foot declined -$4 QoQ to $173 and TTM EBITDA and free cash flow declined from $120M and -$257M, respectively, to $16M and -$326M. All figures are likely to be lower over the next year.
  • Big Lots had $1.3B of inventory and $62M in cash at the end of 3Q22. The company has over $2B in debt and lease liabilities and annual interest costs of $16M.
  • CEO Bruce Thorn stated, "We said we'd simplify our value offerings and communicate them better, offer more bargains, leverage our scale and more deeply partner with our vendor partners to deliver compelling opening price points across our assortment. I'm pleased to say we made progress in all those areas. We have been reducing our opening price points to create unique deals…As it relates to bargains, which are closeout items, off-price brands and limited-time deals, it remained a good environment for procurement…we procured great deals in categories such as toys, home appliances and soft home."
  • On future locations, Thorn commented, "As we think about our real estate strategy and store openings and closings in the future, we see an opportunity to reshape our store portfolio more towards these rural and small-town markets with an emphasis on furniture and home goods…In these markets, we face less direct competition in our home categories and have a lower cost structure." They didn’t provide a specific store plan for 2023; it's likely to be +30-40 new locations in rural and small markets, offset by a greater number of closures in larger metro markets.

Key Ollie's Bargain Outlet Metrics

  • Ollie’s TTM sales per square foot were flat at $125 and will likely remain at that level over the next year if things go well. Like many off-price retailers, Ollie’s is investing to show better values, and like the dollar store sector, Ollies is expanding into consumables. CEO John Swygert said, "We continue to invest in price to motivate consumers as the competitive environment is highly promotional… We sell good stuff cheap and this type of environment allows us to emphasize our compelling value proposition to consumers…[As] consumers need to save on everyday essentials, we are seeing continued strength in our consumable categories."
  • TTM EBITDA and free cash flow were $148M and -$1M, respectively. Over the next year, EBITDA is likely to trend lower, but FCF higher, as inventory turns improve. Inventory turns were 2.0X for 3Q22, compared to the pre-pandemic level of 2.5X.
  • On new locations for next year, Swygert said, "We remain pleased with the productivity levels of our new stores overall. New stores are the engine for our sales growth. We continue to face challenges in the market today with permitting and construction and as a result, expect to open approximately 45 stores in 2023 (compared to 40 in 2022). Our long-term plan is to open between 50 and 55 stores annually and are confident that our model can support over 1,050 stores in total" (compared to 407 today).

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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