Big Lots Reports Second Quarter EPS From Continuing Operations of $0.51 (EPS $0.52 on an Adjusted Basis)

Earnings per Share

Q2 2016

Q2 2015

YTD 2016

YTD 2015

Continuing operations

$0.51

$0.35

$1.31

$0.95

Impact of legacy pension costs ⁽¹⁾

$0.01

$0.01

$0.04

$0.02

Impact of non-recurring expense ⁽¹⁾

-

$0.05

-

$0.05

Continuing operations - adjusted basis ⁽¹⁾

$0.52

$0.41

$1.35

$1.03

% Change (2016 vs. 2015)

+27%

+31%

(1)  Non-GAAP detailed reconciliation provided below.

Full Year

2016 Guidance ⁽¹⁾

2015 ⁽²⁾

Adjusted EPS from continuing operations

$3.45  to  $3.55

$3.01

% Change (2016 vs. 2015)

 +15%  to  +18%

(1) Non-GAAP - excludes potential impact of legacy pension costs.

(2) Non-GAAP - see attached reconciliation.

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

JULY 30

AUGUST 1

2016

2015

(Unaudited)

(Recast)

ASSETS

Current assets:

Cash and cash equivalents

$58,369

$57,363

Inventories

808,631

821,444

Other current assets

110,043

106,236

   Total current assets

977,043

985,043

Property and equipment - net

545,271

578,802

Deferred income taxes

59,380

59,659

Other assets

42,966

40,859

$1,624,660

$1,664,363

LIABILITIES AND SHAREHOLDERS' EQUITY      

Current liabilities:

Accounts payable

$385,633

$365,640

Property, payroll and other taxes

84,060

79,140

Accrued operating expenses

76,799

72,593

Insurance reserves

43,265

41,282

Accrued salaries and wages

54,580

34,955

Income taxes payable

1,418

1,244

   Total current liabilities

645,755

594,854

Long-term obligations under bank credit facility

257,900

223,200

Deferred rent

58,138

64,387

Insurance reserves

58,242

56,485

Unrecognized tax benefits

14,905

18,020

Other liabilities

46,222

66,885

Shareholders' equity

543,498

640,532

$1,624,660

$1,664,363

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

13 WEEKS ENDED

13 WEEKS ENDED

JULY 30, 2016

AUGUST 1, 2015

%

%

(Unaudited)

(Unaudited)

Net sales

$1,203,155

100.0

$1,209,686

100.0

Gross margin

486,423

40.4

475,834

39.3

Selling and administrative expenses 

416,740

34.6

414,305

34.2

Depreciation expense

30,757

2.6

30,992

2.6

Operating profit

38,926

3.2

30,537

2.5

Interest expense

(1,494)

(0.1)

(969)

(0.1)

Other income (expense)

(377)

(0.0)

(1,742)

(0.1)

Income from continuing operations before income taxes

37,055

3.1

27,826

2.3

Income tax expense

14,318

1.2

10,115

0.8

Income from continuing operations

22,737

1.9

17,711

1.5

Loss from discontinued operations, net of tax

   benefit of $13 and $48, respectively

(22)

(0.0)

(75)

(0.0)

Net income

$22,715

1.9

$17,636

1.5

Earnings per common share - basic (a)

Continuing operations

$0.51

$0.35

Discontinued operations

(0.00)

(0.00)

Net income

$0.51

$0.35

Earnings per common share - diluted (a)

Continuing operations

$0.51

$0.35

Discontinued operations

(0.00)

(0.00)

Net income

$0.50

$0.34

Weighted average common shares outstanding

Basic

44,402

50,831

Dilutive effect of share-based awards

612

505

Diluted

45,014

51,336

Cash dividends declared per common share

$0.21

$0.19

(a)

The earnings per share for Continuing Operations, Discontinued Operations and Net Income are separately calculated in accordance with accounting pronouncements; therefore, the sum of earnings per share for Continuing Operations and Discontinued Operations may differ, due to rounding, from the calculated earnings per share of Net Income.

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

26 WEEKS ENDED

26 WEEKS ENDED

JULY 30, 2016

AUGUST 1, 2015

%

%

(Unaudited)

(Unaudited)

Net sales

$2,515,730

100.0

$2,490,141

100.0

Gross margin

1,004,104

39.9

979,950

39.4

Selling and administrative expenses 

842,152

33.5

834,551

33.5

Depreciation expense

60,456

2.4

62,217

2.5

Operating profit

101,496

4.0

83,182

3.3

Interest expense

(2,128)

(0.1)

(1,465)

(0.1)

Other income (expense)

302

0.0

(1,714)

(0.1)

Income from continuing operations before income taxes

99,670

4.0

80,003

3.2

Income tax expense 

38,320

1.5

29,984

1.2

Income from continuing operations

61,350

2.4

50,019

2.0

Income (loss) from discontinued operations, net of tax

   (expense) benefit of ($15) and $108, respectively

24

0.0

(170)

(0.0)

Net income 

$61,374

2.4

$49,849

2.0

Earnings per common share - basic (a)

Continuing operations

$1.32

$0.96

Discontinued operations

0.00

(0.00)

Net income 

$1.32

$0.96

Earnings per common share - diluted (a)

Continuing operations

$1.31

$0.95

Discontinued operations

0.00

(0.00)

Net income 

$1.31

$0.95

Weighted average common shares outstanding

Basic

46,434

51,959

Dilutive effect of share-based awards

494

536

Diluted

46,928

52,495

Cash dividends declared per common share

$0.42

$0.38

(a)

The earnings per share for Continuing Operations, Discontinued Operations and Net Income are separately calculated in accordance with accounting pronouncements; therefore, the sum of earnings per share for Continuing Operations and Discontinued Operations may differ, due to rounding, from the calculated earnings per share of Net Income.

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

13 WEEKS ENDED

13 WEEKS ENDED

JULY 30, 2016

AUGUST 1, 2015

 (Unaudited) 

 (Unaudited) 

  Net cash provided by operating activities 

$32,889

$29,138

  Net cash used in investing activities

(26,278)

(35,550)

  Net cash used in financing activities

(12,632)

(3,416)

Decrease in cash and cash equivalents

(6,021)

(9,828)

Cash and cash equivalents:

  Beginning of period

64,390

67,191

  End of period

$58,369

$57,363

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

26 WEEKS ENDED

26 WEEKS ENDED

JULY 30, 2016

AUGUST 1, 2015

 (Unaudited) 

 (Unaudited) 

  Net cash provided by operating activities 

$111,500

$116,663

  Net cash used in investing activities

(45,030)

(64,302)

  Net cash used in financing activities

(62,245)

(47,259)

Increase in cash and cash equivalents

4,225

5,102

Cash and cash equivalents:

  Beginning of period

54,144

52,261

  End of period

$58,369

$57,363

BIG LOTS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)

The following tables reconcile: (1) selling and administrative expenses, selling and administrative expense rate, operating profit, operating profit rate, income tax expense, effective income tax rate, income from continuing operations, net income, diluted earnings per share from continuing operations, and diluted earnings per share for the second quarter of 2016, the year-to-date 2016, the second quarter of 2015, the year-to-date 2015, the third quarter of 2015, the fourth quarter of 2015, and the full year 2015 (GAAP financial measures) to adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share (non-GAAP financial measures).

 Second quarter of 2016 - Thirteen weeks ended July 30, 2016 

 As Reported 

 Adjustment to
exclude pension
costs 

 As Adjusted
(non-GAAP) 

 Selling and administrative expenses 

$             416,740

$                     (1,070)

$             415,670

 Selling and administrative expense rate 

34.6%

(0.1%)

34.5%

 Operating profit 

38,926

1,070

39,996

 Operating profit rate 

3.2%

0.1%

3.3%

 Income tax expense 

14,318

424

14,742

 Effective income tax rate 

38.6%

0.0%

38.7%

 Income from continuing operations 

22,737

646

23,383

 Net income 

22,715

646

23,361

 Diluted earnings per share from  

      continuing operations 

$                    0.51

$                         0.01

$                    0.52

 Diluted earnings per share  

$                    0.50

$                         0.01

$                    0.52

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") all costs associated with the Company's pension plans, as the Company froze benefits and began termination activities for its pension plans in 2015 with the intentions of completing the termination and distributing all plan assets during 2016, which totaled $1,070 ($646, net of tax).  The pension costs encompass all items associated with net periodic benefit costs, including curtailment and settlement charges, and professional fees associated with the plan and plan termination proceedings.

 Year-to-date 2016 - Twenty-six weeks ended July 30, 2016 

 As Reported 

 Adjustment to
exclude pension
costs 

 As Adjusted
(non-GAAP) 

 Selling and administrative expenses 

$             842,152

$                     (3,210)

$             838,942

 Selling and administrative expense rate 

33.5%

(0.1%)

33.3%

 Operating profit 

101,496

3,210

104,706

 Operating profit rate 

4.0%

0.1%

4.2%

 Income tax expense 

38,320

1,270

39,590

 Effective income tax rate 

38.4%

0.0%

38.5%

 Income from continuing operations 

61,350

1,940

63,290

 Net income 

61,374

1,940

63,314

 Diluted earnings per share from  

      continuing operations 

$                    1.31

$                         0.04

$                    1.35

 Diluted earnings per share  

$                    1.31

$                         0.04

$                    1.35

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with GAAP all costs associated with the Company's pension plans, as the Company froze benefits and began termination activities for its pension plans in 2015 with the intentions of completing the termination and distributing all plan assets during 2016, which totaled $3,210 ($1,940, net of tax).  The pension costs encompass all items associated with net periodic benefit costs, including curtailment and settlement charges, and professional fees associated with the plan and plan termination proceedings.

 Second quarter of 2015 - Thirteen weeks ended August 1, 2015 

 As Reported 

 Adjustment to
exclude loss
contingency 

 Adjustment to
exclude pension
costs 

 As Adjusted
(non-GAAP) 

 Selling and administrative expenses 

$             414,305

$                   (4,487)

$                     (1,058)

$             408,760

 Selling and administrative expense rate 

34.2%

(0.4%)

(0.1%)

33.8%

 Operating profit 

30,537

4,487

1,058

36,082

 Operating profit rate 

2.5%

0.4%

0.1%

3.0%

 Income tax expense 

10,115

1,776

417

12,308

 Effective income tax rate 

36.4%

0.4%

0.1%

36.9%

 Income from continuing operations 

17,711

2,711

641

21,063

 Net income 

17,636

2,711

641

20,988

 Diluted earnings per share from  

      continuing operations 

$                    0.35

$                       0.05

$                         0.01

$                    0.41

 Diluted earnings per share  

$                    0.34

$                       0.05

$                         0.01

$                    0.41

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with GAAP: (1) a pretax accrual of a loss contingency associated with merchandise-related legal matters of $4,487 ($2,711, net of tax); and (2) all costs associated with the Company's pension plans, as the Company froze benefits and began termination activities for its pension plans in 2015 with the intentions of completing the termination and distributing all plan assets during 2016, which totaled $1,058 ($641, net of tax).  The pension costs encompass all items associated with net periodic benefit costs, including curtailment and settlement charges, and professional fees associated with the plan and plan termination proceedings.

 Year-to-date 2015 - Twenty-six weeks ended August 1, 2015 

 As Reported 

 Adjustment to
exclude loss
contingency 

 Adjustment to
exclude pension
costs 

 As Adjusted
(non-GAAP) 

 Selling and administrative expenses 

$             834,551

$                   (4,487)

$                     (2,125)

$             827,939

 Selling and administrative expense rate 

33.5%

(0.2%)

(0.1%)

33.2%

 Operating profit 

83,182

4,487

2,125

89,794

 Operating profit rate 

3.3%

0.2%

0.1%

3.6%

 Income tax expense 

29,984

1,776

836

32,596

 Effective income tax rate 

37.5%

0.1%

0.0%

37.6%

 Income from continuing operations 

50,019

2,711

1,289

54,019

 Net income 

49,849

2,711

1,289

53,849

 Diluted earnings per share from  

      continuing operations 

$                    0.95

$                       0.05

$                         0.02

$                    1.03

 Diluted earnings per share  

$                    0.95

$                       0.05

$                         0.02

$                    1.03

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with GAAP: (1) a pretax accrual of a loss contingency associated with merchandise-related legal matters of $4,487 ($2,711, net of tax); and (2) all costs associated with the Company's pension plans, as the Company froze benefits and began termination activities for its pension plans in 2015 with the intentions of completing the termination and distributing all plan assets during 2016, which totaled $2,125 ($1,289, net of tax).  The pension costs encompass all items associated with net periodic benefit costs, including curtailment and settlement charges, and professional fees associated with the plan and plan termination proceedings.

 Third quarter of 2015 - Thirteen weeks ended October 31, 2015 

 As Reported 

 Adjustment to
exclude pension
costs 

 As Adjusted
(non-GAAP) 

 Selling and administrative expenses 

$             411,994

$                     (2,560)

$             409,434

 Selling and administrative expense rate 

36.9%

(0.2%)

36.7%

 Operating (loss) profit 

(2,158)

2,560

402

 Operating (loss) profit rate 

(0.2%)

0.2%

0.0%

 Income tax benefit 

(2,400)

1,012

(1,388)

 Effective income tax rate 

58.5%

31.5%

90.0%

 Loss from continuing operations 

(1,703)

1,548

(155)

 Net (loss) income 

(1,508)

1,548

40

 Diluted earnings per share from  

      continuing operations 

$                  (0.03)

$                         0.03

$                  (0.00)

 Diluted earnings per share  

$                  (0.03)

$                         0.03

$                    0.00

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") all costs associated with the Company's pension plans, as the Company froze benefits and began termination activities for its pension plans in 2015 with the intentions of completing the termination and distributing all plan assets during 2016, which totaled $2,560 ($1,548, net of tax).  The pension costs encompass all items associated with net periodic benefit costs, including curtailment and settlement charges, and professional fees associated with the plan and plan termination proceedings.

 Fourth quarter of 2015 - Thirteen weeks ended January 30, 2016 

 As Reported 

 Adjustment to
exclude pension
costs 

 As Adjusted
(non-GAAP) 

 Selling and administrative expenses 

$             462,172

$                     (8,247)

$             453,925

 Selling and administrative expense rate 

29.2%

(0.5%)

28.7%

 Operating profit 

154,708

8,247

162,955

 Operating profit rate 

9.8%

0.5%

10.3%

 Income tax expense 

56,528

3,264

59,792

 Effective income tax rate 

37.3%

0.3%

37.6%

 Income from continuing operations 

94,692

4,983

99,675

 Net income 

94,532

4,983

99,515

 Diluted earnings per share from  

      continuing operations 

$                    1.91

$                         0.10

$                    2.01

 Diluted earnings per share  

$                    1.91

$                         0.10

$                    2.01

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") all costs associated with the Company's pension plans, as the Company froze benefits and began termination activities for its pension plans in 2015 with the intentions of completing the termination and distributing all plan assets during 2016, which totaled $8,247 ($4,983, net of tax).  The pension costs encompass all items associated with net periodic benefit costs, including curtailment and settlement charges, and professional fees associated with the plan and plan termination proceedings.

 Full Year 2015 - Fifty-two weeks ended January 30, 2016 

 As Reported 

 Adjustment to
exclude loss
contingency 

 Adjustment to
exclude pension
costs 

 As Adjusted
(non-GAAP) 

 Selling and administrative expenses 

$          1,708,717

$                   (4,487)

$                   (12,932)

$          1,691,298

 Selling and administrative expense rate 

32.9%

(0.1%)

(0.2%)

32.6%

 Operating profit 

235,732

4,487

12,932

253,151

 Operating profit rate 

4.5%

0.1%

0.2%

4.9%

 Income tax expense 

83,842

1,776

5,112

90,730

 Effective income tax rate 

37.0%

0.0%

0.1%

37.1%

 Income from continuing operations 

143,008

2,711

7,820

153,539

 Net income 

142,873

2,711

7,820

153,404

 Diluted earnings per share from  

      continuing operations 

$                    2.81

$                       0.05

$                         0.15

$                    3.01

 Diluted earnings per share  

$                    2.80

$                       0.05

$                         0.15

$                    3.01

The above adjusted selling and administrative expenses, adjusted selling and administrative expense rate, adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share are "non-GAAP financial measures" as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with GAAP: (1) a pretax accrual of a loss contingency associated with merchandise-related legal matters of $4,487 ($2,711, net of tax); and (2) all costs associated with the Company's pension plans, as the Company froze benefits and began termination activities for its pension plans in 2015 with the intentions of completing the termination and distributing all plan assets during 2016, which totaled $12,932 ($7,820, net of tax).  The pension costs encompass all items associated with net periodic benefit costs, including curtailment and settlement charges, and professional fees associated with the plan and plan termination proceedings.

Our management believes that the disclosure of these non-GAAP financial measures provides useful information to investors because the non-GAAP financial measures present an alternative and more relevant method for measuring our operating performance, excluding special items included in the most directly comparable GAAP financial measures, that management believes is more indicative of our on-going operating results and financial condition. Our management uses these non-GAAP financial measures, along with the most directly comparable GAAP financial measures, in evaluating our operating performance.