The story of the two large liquidator chains--Big Lots and Ollie's Bargain Outlet--is convoluted as they have different businesses despite both being “liquidators.” Placer data (below) shows Ollie’s driving the same traffic increases as HomeGoods, which is a high bar to match. HomeGoods is well above Ollie’s on a comparable basis to 2019, as Ollie’s struggled with getting bargains on the shelves in 2021 and early 2022 due to industry-wide congested supply chains and other factors which limited the availability of close-out deals. Readers can find our prior comments on their results and differences.
The net of the results for the second half of 2023 is that Big Lots is still “stuck” and Ollie’s continues to march revenue and profits higher. Big Lots’ revenue, profits, and cash generation continue to contract. Big Lots is taking $200M out of its expense base, selling assets, and relocating stores from competitive suburban markets to outer-suburb and rural markets (the company provided no update on this during this week's update). During the quarter, they brought in $205M in cash from sale-leasebacks transactions on one of its distribution centers and 23 stores; the company is still shopping its headquarters and six other stores. They ended the quarter with $47M in cash.
In addition to the cost-outs and real estate portfolio change, Big Lots has many other changes/strategies in the works, including on merchandise. On value and merchandise, CEO Bruce Thorn said, “As it relates to owning bargains, 3Q 2023 marked an important milestone on our journey to provide incredible value. Our mix of bargains, which are closeout items, opportunistic buys and other sourced products where we have a significant comparable price advantage, was nearly 50% of sales in Q3, well exceeding our goal of over one-third by the end of the year. We achieved this by procuring products from over-inventoried and distressed retailers and vendors and through new factory direct sourcing partners domestically and overseas. That said, our path to offer more compelling bargains across a broad range of categories is by no means complete. Our next phase is to offer more extreme bargains. Whereas a typical bargain would be at a price that's significantly below most retailers' prices, an extreme bargain would be priced significantly below price leading retailers. To help us accelerate our progress on owning bargains, earlier today, we announced the creation of a new role, Senior Vice President of Extreme Value Sourcing, to help lead our growing team of closeout buyers, and this leader will report directly to me.”
Ollie’s +41 new stores over the past year (to 505) and +7.0% comparable-store sales produced a +15% increase in sales. Ollie's Army memberships (representing 80% of sales) expanded by +5%. For the year, the membership rank should near 14M, up +35% from the beginning of 2020. COO Eric Van der Valk said, “The growth of our social media marketing program helps keep Ollie's message of savings top of mind with existing customers and attract new customers as well. This is helping fuel our growth, especially with the younger customer demographic, which is our fastest-growing segment. Our collective marketing efforts led to a nice improvement in Ollie's Army growth this quarter.”
Van der Valk also noted, “I guess kind of a retrospective on marketing several years ago, we've spent almost nothing in digital channels. It's about as close to 0 as you can get. Now several years later, it's over one-third of our overall marketing spend. It's very, very meaningful...[Tom Kiper] really accelerated propelled our investments in digital over the last several years. A large percentage of that investment is in social media channels. Meta channels, Facebook and Instagram, we have a strategic relationship with Google now with YouTube, we're on TikTok. The influencer program, over 50 now that we're working with mostly micro influencers. We think authenticity is really critical with influencers.” (Big Lots spends roughly the same, $70M, as Ollie’s on advertising, despite having 3x the number of locations.)
The sales increase, along with improved margins, yielded a +32% in profits and improved cash generation, with the balance sheet at $263M in cash & eq. The earnings release quotes CEO John Swygert saying, “The closeout deal flow is very strong. Consumers remain under pressure and are looking for ways to save money on branded merchandise they need and want in their homes. Manufacturers are creating new and innovative products, changing packaging and sizes, and competing for retail shelf space, which is creating more closeout opportunities.” And on the earnings call, Swygert said, “Over 60% of our product categories comp-ed positive with our top performers being candy, sporting goods, housewares, food and toys. Our summer seasonal categories such as room air and summer furniture also contributed to our strong performance. [So far in Q4] we've seen some turnaround in domestics and clothing [which were soft in Q3].”
