Big Lots swings to loss as inflation, high gas prices weigh on spending

Big Lots reported a surprise fiscal first-quarter loss and disappointing sales as higher fuel prices and broader inflation cut into consumer spending, and said it would scale back spending related to new store openings and remodels.

The company reported a net loss of $11.1 million, or $0.39 a share, for the quarter ended April 30, compared to net income of $94.6 million, or $2.62 a share, in the year-ago period. Analysts had expected earnings per share of $0.95.

Sales fell 15.4% to $1.37 billion, missing estimates of $1.46 billion. Same-stores decreased 17.0%.

Gross margin contracted to 36.7% from 40.2% as selling and administrative expenses declined 3.3%.

In a statement, Big Lots CEO Bruce Thorn said that the retailer got off to a solid start in February and March, but trends materially slowed in April, resulting in a need to increase markdowns.

“We believe the slowdown was caused by the spending pressure our consumers felt from higher gas prices and broader inflation, which is affecting discretionary purchases across the retail industry,” he said.  “We expect the environment to remain challenging and we remain highly focused on managing the business prudently, which includes aggressively right-sizing our inventories over the course of Q2.

The retailer said it is focused on opening price points that drive traffic and improving gross margin rates through capitalizing on significant close-out opportunities, more targeted pricing and promotions, minimizing supply chain charges and reducing shrink.

“We are also accelerating SG&A cost reductions to generate over $70 million in additional savings this year,” Thorn said. “Further, we are strengthening our balance sheet by temporarily scaling back capital expenditures associated with new store openings and remodels.”

[Read More: Big Lots’ ambitious long-term growth outlook includes 500 net store openings]

For the fiscal second quarter, Big Lots expects same-store sales to decline in the single-to-high single-digit percentage range. The company declined to provide earnings guidance for the current quarter, but noted that promotional activity will likely drive gross margins into the low 30 percent range. Cost-cutting and supply-chain improvements should boost margins over the back half of the year, the company said.

Big Lots operates 1,438 stores in 47 states.