Placer.ai data indicates Ollie’s Army showed up during the holidays and into early 2023; in contrast, traffic was challenged for Big Lots. That Ollie’s could produce such strong traffic gains during December and January, when most of retail also had deep clearance prices, portends well for Ollie’s in the first half of 2023, as that competitor clearance activity has now lapsed while Ollie’s strong value and treasure hunt will continue. Big Lots' headwinds are expected to persist with comparable-store sales down double-digits in the near term. To generate cash, they are now "selling the furniture" including stores and the HQ. For 2023, their price points and marketing are to communicate "unmistakable value."
Ollie's Bargain Outlet
- Ollie’s produced higher earnings on its +2% comparable-store sales and +9% increase in store count, thus recovering from profit declines in the prior quarters. Gross margin was up +110 bps on lower supply chain costs. CEO John Swygert said, “We are encouraged by the transaction trends we experienced in the fourth quarter as customers responded to our incredible deals. Our strongest categories were food, candy, health and beauty, seasonal and automotive, while we experienced some softness in discretionary categories, such as toys and bed and bath.” In other words, the strength is coming from small-ticket items.
- Swygart continued, “As consumers need to save money, the strength of our value proposition is resonating, and we have seen an acceleration in our business over the past few months. We believe we are well positioned to thrive in the current environment, and our customers are responding to the tremendous values in our stores.” (Commentary that mirrors what we've heard from off-price retailers.) “Ollie's Army continues to grow steadily and remains a key driver of our sales, accounting for almost 80% of our sales in the fourth quarter. The Army grew 4.8% over the prior year, ending the period with over 13.2 million active members. We were pleased with Ollie's Army Night, an event where we offer exclusive deals and discounts to our most loyal customers.” He also shared that Ollie’s strongest growth in terms of age segment is coming from those older than 60.
- Ollie’s intends to add 45 new stores in 2023 (on top of 468) and drive margins and profits higher even with low +1 comparable-sales growth. Expectations are for EBITDA margins to recover to 12% and sales productivity of $165 per square foot. COO Eric van der Valk, “We remain confident in our ability to open at least 1,050 stores and plan on returning to our normal store opening cadence for fiscal 2024. We plan to break ground soon on our fourth distribution center in Illinois, which we expect to open in the second quarter of fiscal 2024. When the network expansions are completed, we will have the capacity to support over 700 stores. We believe that the investments we are making will position us to deliver consistent long-term growth."
- Big Lots Q4 2022 results were pulled lower by large declines in the home category, resulting in sales density falling to $164 per square foot. Part of the decline in furniture was the post-pandemic unwind/normalization, but another factor was product shortages for owned-brand Broyhill Furniture resulting from the business failure of its largest supplier, United Furniture Industries. In addition, the company is making downward adjustments to its list prices with CEO Bruce Thorn saying, “We have a strong offering of value-based private brands and have been lowering our opening price points through cost engineering and using our scale and relationships with suppliers.”
- EBITDA for the year was a loss of -$97M and the business consumed $250M in cash. Year-end inventory was $1.1B and cash & equivalents was $43M against long-term debt of $300M. The company has a $900M credit line (which is probably secured by its inventory). To generate more liquidity, the company is doing sale leasebacks. 20 were completed in Q4 2022, and they have 30 remaining owned stores. The headquarters and DCs are also being looked at. Thorn, “in 2023, we expect to drive over $70 million of incremental structural savings through supply chain, store labor efficiencies, and efficiencies in our corporate organization.” (Most retailers are seeking to improve store service levels and are not seeking to find “store labor efficiencies.”)
- As we wrote after its Q3 2022 update, Big Lots wants to migrate its store footprint to rural and small-town markets that are “underserved, particularly in furniture and home categories, where it faces less direct competition.” Expansion in those markets will be more than offset by closures in suburban and urban areas. As such, we would view the total store count of 1,425, to have “peaked”.