Big Lots Earnings Call Insights: Test Markets and Top Line Trends

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Big Lots, Inc. (NYSE:BIG) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Test Markets

Patrick McKeever – MKM Partners: I was actually having some telephone problems earlier. Just going back to the cooler – the frozen and refrigerated food test, can you just talk through some of the numbers there? How many stores are now on the test and maybe give us a little additional color on the traffic and ticket impact and whatnot?

Timothy A. Johnson – SVP and CFO: Patrick, it’s T.J. I’ll start and then if David wants to chime in from a merchandising perspective, but at a real high level, we’ve got 75 stores identified in the test markets, five markets as you know across the country. So we had pretty representative sample. In those test markets, we’re seeing a lift in comps and that lift in comps is coming solely from transactions, which was the goal of the test you’ll recall. So we feel very good about that outcome. The basket size in a traditional, I guess, cooler or SNAP basket is slightly lower than our company average, but still in – I’ll call it, in the low 20s. So we’re encouraged by that as well. We like what it’s doing for, again taking down that barrier to entry in the store. In round numbers, the cost was about $30,000 to $35,000 per store in terms of CapEx, and more comfortable given the sales lift that we’re seeing that that is certainly going to pay for itself over the longer term. We won’t go into details of comps versus margin rates versus, et cetera, et cetera on this call. That’s something we’ll talk about potentially at later date. Again, the good news here is, we had a pro forma in place when we put the test in place that says if we hit this, we’ll call that success and we’ll move forward. We reviewed that with the Board this week and they were as encouraged as we were. So, what we’re communicating today is the Group internal is working on a rollout plan for the next couple of years understanding what our resource needs are and how we balance that against other initiatives in the business to make sure we’re prioritizing the right thing for the customer.

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