Hi. Good morning, everyone. My name is Peter Keith. I'm the senior research analyst at Piper Sandler covering hardlines and leisure companies. Very pleased to introduce our next company, Big Lots.
Participating from Big Lots, we have three executives. We have, chief executive officer, Bruce Thorn chief financial officer, Jonathan Ramsden and chief merchandising officer, Jack Pescicolo. So many of you may know Big Lots, but for a quick overview, they are a neighborhood discount retailer operating over 1,400 stores across 47 states with a product assortment that is focused on home essentials. So that would include items, like furniture, soft home, seasonal, food, and consume. For today's format, we're going to be using a q and a.
I am going to ask questions, for a period of time, and then we wanna take questions from the audience. So you should see a prompt at the bottom of the screen to input your questions, and I will address those, later on in today's session. So welcome, Big Lots team. Thanks for joining us today.
Thank you.
Thank you, Pierre.
Great. So I want to kick it off with today's release. You had some preliminary results out for Q4 quarter to date. And just at a high level, you reported that same store sales trends are tracking up 7.5%. So it's slightly below the consensus expectations of about 9.5%.
And then you were guiding EPS to be about flat year on year, which is also a little bit below the consensus expectations. So maybe to kick it off with you, Bruce, first, could you give us an overview of the quarter to date period, maybe some of the positive surprises as well as some of the negative surprises?
Yes. Thanks, Peter, and thank you for everyone joining us. Overall, the quarter is shaping up to be pretty much what we expect with some distinctions. As you mentioned, sales comps are coming in high single digit range, specifically where we're positive 7.5% quarter to date, and that number is increasing with every day. We're finishing Q4 and fiscal year twenty twenty in a strong manner with accelerating sales trends.
We're seeing positive double digit comps across all merchandising divisions with the exception of food, which is positive low single digit, and also our seasonal business where our sales were constrained in December due to a shortage in holiday inventory, due to our decision in spring when COVID broke out to pull back on our purchase order and our inability to chase it effectively, and also the robust pull forward of our holiday sales in October and November, which were up significantly. Traffic in December was down more than expected. We saw that probably from the C-nineteen stay at home orders across the country, and also the fact that customers were avoiding traveling during, or traditionally shopping during heavy traditional shopping days. Traffic and sales have rebounded nicely in January as we cycled through our seasonal sales comps, and we start to begin to feel the tailwinds of the stimulus checks in our customers' hands. E commerce, our omni channel capabilities are clearly bolstering our top line growth and our overall demand growth is accelerating from Q3, and it's up 135% quarter to date as we put out in the release.
What's more, and I think it's important to note, our e commerce business with BOPIS just passed the $250,000,000 sales mark, which is a significant growth rate over the last couple of years. Margins coming in flat year over year for Q4 as expected, but with some nuances. While we're benefiting from less markdowns year over year, freight costs have been increasing as a result of a few things. One, congestion in shipping lanes worldwide. That's leading to delays, higher rates, as well as significant emergent detention charges we're seeing in our yards as we work with external and internal capacity constraints.
In short, our DC network is operating beyond capacity and will require additional investment in 2021 to keep up with the growth, which is a good opportunity and we're going to be very circumspect in our approach there as we expand our distribution capabilities in 'twenty one and beyond. Expenses for the quarter are pretty much in line with our prior guidance, reflecting the headwinds of our sale leaseback on our distribution centers, as well as COVID costs and higher bonus and stock comp given the exceptional year we've had. In total, we're in the final few weeks of what's going to be a stellar year for the company, an unprecedented year, and I can't thank our customers and associates enough, for delivering such an incredible year.
Okay, wonderful. So if I could maybe just break that apart a little bit. First, let's look at the seasonal category, which you'd indicated was down mid teens. That was a surprise, at least certainly to me. If I understand, Bruce, what you're saying is that it was both an inventory and maybe a pull forward issue.
And on the inventory front, it sounds like you had maybe canceled some orders much earlier in the year because there's usually a long lead time. And so that that gave you less inventory than you would have liked, and maybe some of the benefit also showed up in Q3. That a fair way to understand it?
Peter, that's fair. We did a lot of things right this year. It's been an incredible year. We didn't do everything perfectly. Our seasonal purchase was not one of those things we did perfectly.
We wish we could have a redo on it, but it was a decision of ours in spring to pull back on that purchase order, and we just couldn't chase into it as well as we wanted to. If we had more inventory, we would have done even better in December, that Christmas seasonal inventory was what we wish we had. Just couldn't chase into it. It impacted us in December. As we cycle through that, we're seeing really positive comp growth in January as we mentioned.
But all these other things we did right, that was long, we just pulled back too hard.
Sure, understandable. And maybe for Jonathan on the freight side. So you articulated some of the challenges there that impacted margin. I think, in short, it sounds like sort of the sales volumes are surpassing the DC capacity. So maybe there's some third party costs and things that you're paying for.
Is this potentially an ongoing gross margin headwind for maybe we should think about for 2021 in advance of you expanding the DC capacity that Bruce you mentioned?
Yes, Peter, let me pass that out a little bit. We and I think you asked the question on the last earnings call about where that impact was, and could it be in the 150 to 200 basis point range. And at the time, that wasn't where we were seeing it, but it did creep up into that range over the quarter, and we would have offset it with less markdowns, which was what brought us back to the same overall rate position. So it is, as Bruce said, a combination of external and internal factors, delays at the ports resulting in significant demurrage charges at the ports where we can't get our trailers out, transportation spot rates being quite a bit higher, and then when merchandise is getting to our DCs, we're incurring detention charges because of a backlog there, which is a function of the exceptional sales trends we've seen all year, and goes back a little bit to the inventory pullback we had several months ago. And then as factories closed down, as we got more conservative in receipts and then started to accelerate back to restore inventory levels, that's just creating a backlog in DCs, which has meant traders have been sitting in the yards of the DCs for longer and we've been incurring detention charges.
So we have a plan now where we're working that backlog down week by week. We're not yet where we want to be, but we have a trajectory over the next couple of months where we think we'll be in a much better place. There will be some seepage of this into Q1, but we believe we're on path to fix the problem and get caught up. It was again caused by the unique circumstances of 2020, which included, by the way, the fact that in at least one of our DCs in Apple Valley, it was a hotspot for COVID. We've had significant challenges with labor there, and that's caused the processing times to slow down.
We've also had that issue to some degree in the other DCs. So it's kind of been a perfect storm of all those issues, but we do believe it will be behind us as we move through the first quarter.
Okay. And moving down the income statement on the expenses. You called out expense growth similar to Q3 year on year on lower same store sales. You do have the sale leaseback adding a few points to expense growth. Could you talk about some of the other factors?
And then we'll talk more about it later on, but you do have a large cost takeout program. So I guess on one hand, it's a bit surprising, the SG and A dollar growth in conjunction with cost takeouts.
Yes. So the dollar increase we're seeing in Q4 as we guided to in early December is consistent with what we saw in Q3. It's mainly driven by things that are not directly impacted by sales. So the sale leaseback rent expense, that is a structural change in our cost base. We'll get the benefit of that back over time using the proceeds for share repurchases, but it does permanently increase the SG and A expense, and that's about a $12,000,000 impact in Q3 and Q4.
We've had a year where we're close to doubling our earnings, and that's driven significantly higher bonus expense and fourth quarter, the back half in general, but the fourth quarter in particular bears the greatest element of that. The bonus is accrued in relation to the profits that we're making in the fourth quarter relative to the third. And then our PSU expense is impacted by the higher stock price, so when that gets valued is when the targets for the year are set, the point at which they were set for the 2021 stock PSU vesting, perform share vesting, the stock price was significantly higher and that impacted Q3 and Q4. It's obviously non cash. And then the other piece that's somewhat fixed is the COVID costs, all these not variable, sales, which were 5,000,000 or $6,000,000 in each of Q3 and Q4.
So you add all those things up and they are driving the expense increases we're talking about. The underlying expenses were a little bit higher in Q4 than Q3 relative to sales, but that's a combination of a few different items. Importantly though, to your point, we are taking structural costs out. We're going have some tailwinds in 2021, both from structural cost takeout, but our bonus expense which was way higher this year because we're pretty much accrued and maxed, will be back to being accrued and target. That will be a significant reduction in expense.
The PSU expense is a function of where the stock price is when we price those awards for 2021, so we don't know that yet. But we ultimately expect the COVID expenses to roll up, too, so between the back half and the front half of year, that was a very significant number. We also had some one off severance expenses in 2020, which we don't expect to be recurring. So there's a lot of one time expense in 2020, which we expect to normalize in 2021, and then on top of that, to your point, we do expect to be taking costs out structurally in 2021 over and above what we've already taken out. That remains absolutely part of the equation, and we'll give more color on that in March.
Okay, all right. Great. I may dig into that a little bit more in today's discussion. But lastly, just for the quarter to date trend, so far with ICR, a couple of companies have highlighted, a decent start to January, maybe a stimulus check related. You guys have historically been a big beneficiary of stimulus checks or tax refunds.
Is that something that, you're beginning to see so far in the first two weeks of the current month?
Bruce, you want to take that?
Yeah, I'll start these off and Jack can chime in. There's no doubt that as stimulus checks get in the hands of our customers, just like tax return checks, it's very elastic. They get out there and spend accordingly. We've seen that in recent weeks that the checks have gone out. We're also in a nicer situation now that we've cycled out of some of the seasonal inventory comps as well.
So across the board, between stimulus checks and just getting back in shape inventory wise, filling the stock, stocking the shelves and the other product lines coming together, we're seeing a nice January shaping up.
Maybe just to elaborate a bit, Peter, I'd say if you look at our underlying trend and you adjust the seasonal running kind of around double digits for the quarter, then we're going get a stimulus benefit, which we are starting to see. The only other offset of that in January is we're being significantly less promotional than we were a year ago, so our gross margin is going to be stronger in January, and we're happy to be in a position where we can pull back on those promos.
And I'll add the last part, which is we're seeing it across the business. So many of the same categories we saw in the stimulus earlier in this year or last year, those same categories are ticking along. So we can see the benefit of the base business growing in the STEM is good.
Okay. Great. So, next, I I wanna, maybe just do a quick recap of of 2020 because it was certainly a a very dynamic year, well, for a lot for everyone. But but, you know, for for Big Lots, which is today's discussion, really quite a dynamic year for the company. I I think, you know, Big Lots does get characterized as a COVID winner for the year with numerous sales benefits as we talked about with stimulus checks or maybe the shift to home spending.
But, you know, my view is I've covered the company for quite a long time. There did seem to be some other positive changes sort of beneath the surface in terms of an overarching improvement story. And so, Bruce, what I was hoping you could address is maybe what are some things looking back in the year that you're proud of that you think might be getting overshadowed by the overall COVID demand?
Yeah, thanks for this question. It's a great question. I think the first thing that's important to note is that we are in a fantastic marketplace, big lots that is, that continues to grow year over year. And we're very well positioned in that marketplace as a friendly neighborhood discount store, easy and fun to shop with endless deals from everything from giant gummy beers to Groy Hill sectional sofas, and value never goes out of style. So we're very fortunate to be in this marketplace and assorted and situated the way we are.
Our assortment's an everyday essential assortment, not just during the crisis, the COVID-nineteen crisis or emergency. And we've got a new leadership team. Over the past eighteen months, that leadership team we brought in, as well as the work we've done on a new plan on Operation North Star, which has been focused on growth, cost management, smart investment and enablement of the company actually was catching stride just as the pandemic broke. And that plan put us in the right place to navigate an extremely arduous environment this year. So we're very proud of what the team, our associates and leadership's done.
We kicked off a number of compelling strategic initiatives this year. One being the launch of Broyhill in its first year that continues to surprise and delight our customers. We are about to press the $400,000,000 mark in this first year of Broyhill. In fact, we'll hit it this next week. That's a significant growth.
It's a significant differentiator for us. And I believe that we're well on our way for this brand to become a billion dollar brand in a handful of years as we expand it across, as Jack expands it across multiple divisions in our assortment. E commerce is another one. You know, I joined in late twenty eighteen, and at that time we had under $50,000,000 in sales and were unprofitable. And in a short amount of time in the last few years, this business now just passed, as I mentioned earlier, dollars $250,000,000, a quarter billion dollars in e comm demand growth, and we just hit that this week.
I believe the e commerce business is again another billion dollar business in a handful of years. We've done a lot of things this year to make shopping fun and easy and convenient at Big Lots for our customers. We added, not only BOPIS last year, but this year curbside pickup, which made it very easy and safe for our customers to shop us. We added same day delivery from our stores with two basic modes, which was Instacart, everything that can fit in the back of a sedan trunk to our customers same day, as well as pickup, which is all the other bulky things like sofas and so on, same day shipping. And we've also added 47 hub stores across The United States that have two day shipping to 90 of our customer base and gives them another alternative and a lower cost of shipping to get it to them.
Our merchandising initiatives, now with Jack's leadership and the team that he's putting in place, they continue to do what we expected them to do. The lot, for example, is still hitting one or two points per store. They're now in We now have the lot in about seven fifty stores, and we'll have another four fifty stores in Q1 rolling out. The queue line, same thing, adding about a point of comp, and that's in seven fifty stores as well. Another four fifty in Q1 of 'twenty one will roll out.
We just recently launched our pantry optimization, which emphasizes food staples and goes more into entertainment food as well as into the household cleaning chemicals. That is performing very well. It's still early, but performing very well. Closeout deals, as you heard us talk in the past, our emphasis on that and building back into that area is exciting. Exciting to see the growth.
I'm sure Jack will talk more about that. Apparel sales as a part of that. I'm not saying we're going to be a massive apparel retailer, but the kind of apparel we're getting into that doesn't require a dressing room and is just comfort wear is what our customer wants, And we're seeing very exciting growth in that area. We've got loads of new growth initiatives that are in development and rolling out, but I'll leave that for Jack to talk as our new chief merchant. Real estate, I'll just hit on this momentarily.
Real estate's another big growth opportunity for us that we've focused on. We are closing fewer stores year over year because we launched this store intervention team that takes struggling scores and improves them. We're relocating to better locations where it makes sense so we can have an expanded footprint to grow fastest growing divisions of Dayton Furniture. We believe that there's a significant store growth opportunity ahead of us as we look into 2021 and beyond. As a result, we just hired this week, and she's on board now, our new Senior Vice President of Real Estate, Shannon Letts.
She comes to us from Walmart, where over the last twenty years she's led various efforts in their real estate journey. When you think about it, Big Lots for the last decade or so has been a 1,400 store unit chain, roughly. And at that same time, some of our competitors have well, they've added thousands of stores. And I think we're in a unique situation to both grow through our ecommerce channel and brick and mortar in the future. So we'll be expanding our store footprint in 2021 and accelerating that in out years.
So finally, you know, I'll just end this this question with, you know, next week, we'll hit a milestone at Big Lots. We'll we'll surpass $6,000,000,000 in annual sales next week. And that's a it's during an unprecedented year. We're very excited about the strategic plan we've put in place and what that's meant to us and realize that we have a lot of hard work in front of us, but we're excited about where we see the future going with our strategic initiatives in place and focus on growth.
Okay. Great. I wanna parse apart a few of those different dynamics as part of today's Q and A and discussion. Maybe first, though, I do want to give Jonathan and Jack a chance to talk. Jonathan, you've now been the CFO for, about one
And, I'm curious maybe how you feel now that you've been at the company for a period of time, how you've had an impact, maybe have had a different approach to managing expenses, managing the budget. Would just like to hear kind of a big picture view for the audience on your approach to being CFO at the company that may be different from prior years?
Sure, Peter. I'll be happy to talk to that. I joined the company because as I engaged with Bruce and other members of the team and the board, I got very excited about the opportunity this company had, and for all the reasons Bruce just enumerated. I strongly believe believe then and believe even more strongly now that we have a tremendous trajectory ahead of us, and it requires a lot of rigor and discipline. That said, we need to make sure we're making really smart decisions, so we're focused on that.
We're focused on really being disciplined around ROI, reading decisions, not having the right data to go into them. Not to make it heavy, but to make sure that we're really being diligent and thorough in evaluating every decision, evaluating key capital decisions like the pivot we made on Store of the Future as we delve into those returns, it causes us to go in another direction. We'll talk more about that in a moment. So I think that's a key focus, having better analytical capabilities, having frankly a bigger team in that area than we've had historically to make sure we can get better insights and conclusions and less data. Try and have the data, but we need to make sure we're focused on what are the insights and conclusions.
Better measurement and accountability so that we are not only being clear about the assumptions we're making as we're going into some of these significant decisions, but we're being rigorous about how we're reading the results of those and having accountability for whoever is driving those decisions. As one small example, we're putting in a post order review process for capital projects which is launching right now and will be reported to the audit committee in the spring, which goes back and looks at all the capital projects we undertook over the trailing twelve, eighteen months. Were the assumptions valid? Were the strategic objectives met? What did we learn from it if not?
And that just makes us better going forward and instills that sense of accountability into the process. So I'd say those three things, another key one is having a culture of frugality and making sure we're really examining every dollar to make sure it's a dollar well spent, whether it's capital or operating, and trying to run that through the entire organization. We have an initiative called Save Bink Now, which is a grassroots, bottoms up program where we solicit ideas from across the company. And I can sit here in my office and I have visibility to a lot of things, but if you're working in a store or in the DC, you're going to see things that I'm not going to see, and we're getting some great ideas coming from all of those places which we're starting to implement. And as well as delivering dollars to the bottom line, that's also creating a mindset where people are thinking in frugal terms of how can I save money, how can I make sure that we're spending our dollars in the most efficient way possible?
So I would say in aggregate they're the sort of cultural things that we've been working on. All certainly finance plays a significant role in them, but they're not uniquely owned by finance and they require some great cross functional collaboration, which I think we're doing a really good job of, too.
Okay, great. Jack, maybe a similar question for you, just asked a different way. You joined about six months ago, most recently from Walmart. And, of course, you joined as chief merchandising officer. So what what kind of initiatives are you taking, and maybe some changes that you're implementing where where we could see the, you know, your well, I'll say, your fingerprints start to show up on the business in, 2021.
Yeah. And and, Peter, I think, my first time with the group. Thank you for having us, and I appreciate the time. Maybe I'll just give a little color and background of, you know, me coming to Big Lots. I'm a lifelong retailer.
I started stocking grocery shelves back in college and spent the last three decades really in the value space of retailing. Had the opportunity to work in Japan, New Zealand, and Australia for about a decade. And whether it was there or whether it was my time at Walmart, I learned that there's a valued customer, and that that's really important for us to make that focus in our business. And one of the things I love about Big Lots is that we're well positioned for that. Customers love deals, customer loves surprise and delight, and Bruce mentioned this.
They love that everyday value. So kind of moving ahead, and I'll talk a little bit about my journey as well. You know, I joined Big Lots now about six months ago. And as Jonathan said, I was inspired by the strategy, the leadership team, the position in the market, but more than anything, the ability to grow our business. I spent the first three months literally getting out to stores, walking categories with every single one of our buyers, leaders across the business.
I was in DCs with Eddie and our stores with Nick and team. I've hit about nearly 50 stores in 12 states, understanding our business and spending time with our buying team to understand where our opportunities are. And we're gonna move thoughtfully, but we're gonna continue to be a sustainable growth business. And that's probably the biggest fingerprint point that I would say for the business. We're approaching much more of an item merchandising mentality.
So how do we get those big bets, and how do we get that item merchandising through the pipeline and into our stores? We're gonna focus on deals. That's the DNA of this company, is about deals, finding them and then selling them, and making sure that we present them in the right way and we distort in the stores so that we can actually lean in and drive item merchandising, which drives assortments, which drives categories, which drives the overall box performance, as well as our ecommerce performance. And as Bruce and Paul Johnson mentioned, growing our footprint. One of the things that's come up a lot is that we're gonna focus on closeouts.
Now we've done a good job of growing your closeouts in the last twelve to six months under Bruce's leadership and the team. We're gonna expand that. We're seeing phenomenal growth, and so you're gonna see continued growth in that space, and we can talk about more about that. Couple other points where I'd say you'll see fingerprints are a a focus on is productivity of our macro space. I think we've talked in the past from the notes I've read and what I've seen in the business is that we've got to be more productive with our categories and our macro space in the store, and we've got to deal with data and insights and make some fact based decisions.
So we'll be implementing some tools that'll help us with space planning, macro store layout, and how we're thinking about engaging with the customer across the store and make sure it makes sense through the supply chain all the way to operations. And the last thing I'd say is we're gonna focus on category opportunities. So I'm sure we'll get a chance to talk about the lot and the queue and how we're digging into apparel and how we can expand in certain areas of the store. But you'll see us really think about and experiment with how do we drive some category growth because we really can sell a lot more merchandise in the store than we're selling now.
Very interesting. We'll look forward to seeing, some of those changes as they unfold. We are at the halfway mark right now. So I'll remind, participants in the audience, if they would like to ask a question, you can input a question down at the bottom, and we'll get to those in a few minutes. Maybe to circle back on the closeout topic, that does seem to get a lot of investor interest.
So Jack and Bruce, you both have talked about that. We'll just go back to Q3. You saw 50% growth in closeouts with that quarter. Could you talk about maybe where you're finding some early success? And then, how do you get, I guess, ramp back into closeouts successfully without exposing yourself to markdown risk?
Yeah. Do you want me to start with that, Bruce, and you can jump in?
Oh, go ahead.
Yeah. So, we've seen our closeout, percent of business and growth accelerate since the third quarter, and we're happy with that. We're being very thoughtful about what we do. But candidly, Peter, we haven't seen that intersection between that of value and availability, which means we're still looking at great deals and where we can find them. We're seeing success across the whole store.
So you think about some of the big buys and closeouts we're doing in apparel, we've been very successful in those. We've got them in hard home and soft home. Soft home has been a particular standout. We've been able to get some great closeouts Justice and the Scott Brothers bedding. We've been able to do some in furniture with some Sealy closeouts.
And if you think about Hardhome, Barberware, and Black and Decker, all of these are million plus dollar buys and great margin opportunities for us as a company. But more than anything, it's bringing that deal mentality and that excitement, surprise and delight to our customers, and we've just seen no end of it. So we've got huge opportunities in all fronts.
Okay. Wonderful. And, let's see. Maybe moving on, let's circle back on some of the initiatives. Bruce, can you talk about on the lot and the queue lines, those adding a point to comp?
Are they generally performing, in line to your expectations? And do you have any early test evidence of maybe how those initiatives might perform in in year two, of their existence?
Yeah. You know, I'm I'm happy to report that, you know, we tested both the LotMQ. And and when we did that, we thought it'd be adding one to two points of comp in the stores where we had the where where we had the lot, and and we're hitting that. In fact, we're at the higher end of that range. And in recent in recent months, we're seeing weeks where we surpassed that.
And so we're excited about how we're performing. And so what that means is when we first started our journey on the lot, lead times weren't as long as we'd like them, and and and we were scrambling to, you know, figure out the events through the year. Keep in mind that, you know, it's an occasional business. It's an event driven business. We we work around holidays or or life moments, and so building that and planning it out, we expected that we'd get better as time went on, and that's exactly what's happening.
And like I said, you know, to the point where we're at the high end of that range or above in recent weeks. The queue line is a is a similar case. You know, we thought we'd be about a point of comp, and that's right where we are. And, and as we get more lead time and planning involved and continue to adjust it, we expect that we'll be at the top end of that range and beyond. So very happy with it, where we're heading in that.
I think going into Q1, like I said, we've got four fifty or so stores where we'll be introducing it. Those stores are excited to get it. They've seen what some of their neighboring stores have had, and I think the customers are going to really like it as well. And I do think that because now we've got a rhythm going, a cadence going, I do expect that we'll be able to comp the comp for the stores, seven fifty stores of the lot in the queue. And what's more is we launched the pantry optimization as well in, in fall.
That pantry optimization is, there's a lot of noise because we've got tailwinds of, of a holiday season. There's stimulus coming in here now. But, you know, we we think that the that what we're seeing is very promising in how we're deemphasizing food staples, emphasizing the entertainment food, as well as the chemicals. So we expect that the household chemicals, which we expect is going to continue, and we'll keep shaping it. We'll keep shaping it as we go through.
So, yeah, we're very pleased with how our strategic initiatives have come together, and Jack's got a lineup of new stuff coming as well.
Okay. Great. Bruce, as a follow-up on the pantry optimization. So it sounds like the consumables, more of the cleaning chemical products were quite strong. The food side, was up, I believe, low single digit.
Is that a bit of a disappointment? Should we expect maybe more strength to come in food as a part of this pantry optimization effort?
Well, I'll start with this, Jack, and maybe you can add some. Actually, no, it was right in line with what we expected, we're very pleased with the food performance, especially given the transition in fall, you know, that customers and how they transition from space getting up in food and into entertainment food and the household chemicals. The fact that food in general went up low single digits was really very positive. So we'll keep watching this and we'll keep adjusting, but we're happy with where we are right now. Jack?
Yeah, I would add to that. You think about pantry optimization, we wanted to get better productivity in both food and consumables. We took some space from food to give it to consumables. So to see that growth in food, we're encouraged, but we know we've got opportunities to keep growing the productivity and assortment there. And then to echo, you think about the consumer with this where we're trying to get to and serving better in the consumable space.
We're really pleased with their performance, And on a net gain for the business, it's been a good choice. Last thing I'd say is, you know, Bruce talked. We'll keep learning from this, and we'll move pretty quickly to make sure that we capture those each additional benefit, take it to the next level.
Okay, great. Well, so we are starting to get a couple of questions, from the audience. So I'm gonna ask questions to the audience also weave in, some of my questions, which, are related. So maybe the first, this is a nice follow-up to you, Jack, on that last answer. You know, if we look at at Big Lots for a number of years, the food and consumables categories have been challenged to grow.
So you're you're coming in from Walmart most recently, running the food and consumables business. Just looking back from on the at the company when obviously, you weren't there, but what do you think have been the challenges? And and therefore, what are the opportunities?
Yeah. So, you know, candidly, we've got to develop a very clear strategy for who we want to be in food and consumables. And I think we've probably, for the last decade, not been very clear. I would say that as much as I've been a retailer, I've leaned into that food space. And as you pointed out, when I left Walmart, I was managing about 20% of all Walmart's business, which was all their packaged goods business and food.
So that's in my wheelhouse. And we're gonna spend some time and energy not just fixing how we think about where we go to market in food, but then how do we build in a solid private brand program to augment what we wanna do with really solid branded merchandise in that space. And I think, we've got an opportunity to delight our customers in that space. There's gonna be some growth that'll be very thoughtful and will move, you know, smartly across that business. Same thing with consumables.
If you think about our opportunities, we've got an opportunity to do better in pet and cleaning and household chemicals. We have to find if we can expand and sell into new categories space and consumables area. But it's got to fit, and we have to do it in a big lots way that makes sense for the whole box and the way the customer engages in the store. So we're spending a lot of time and energy, in making sure that we move quickly, and you'll see some of that roll out in the market in the next year.
Okay. Great. That sounds exciting. So we'll see what's to come. Moving on to another topic, which just be on store growth.
So this is, partly an audience question, partly a question I wanted to get to. So Big Lots really hasn't had any store growth for, I think, the better part of eight years. You've closed you have opened stores, but you've also closed stores and relocated them. So you are indicating you'd like to pivot back to store growth. Maybe could you give us a sense if you're ready?
Is there some type of store growth target that you think you'd like to achieve on an annualized basis over the next couple of years?
Yeah, Peter, I'll be happy to take that one. So in 2021, we definitely expect that we will have our strongest year of net unit growth in a significant period of time, talking about low single digit percentage unit growth. Our store openings relative to 2020 will accelerate significantly. We'll probably have openings between fifty and sixty total openings in 2021. A decent number of those are relocations, and then with some outright closures, we expect the net amount to be, again, up low single digit in terms of percentage terms.
Part of it, again, is opening more stores going forward, but part of it is also closing fewer stores outright, and we've had the store performance intervention team working for a while and have done a great job of limiting the number of stores we need to close by identifying the root causes of their underperformance and fixing them so they're stores that we're able to keep open. So that's what 2021 looks like. Beyond 'twenty one, we definitely think there's potential to accelerate that. We've done some detailed analysis over the past six, nine months about where we have opportunities, and that's both in existing markets, but also opportunities to grow in markets that we haven't significantly penetrated in the past. We've got much better data around that.
Our CRM awards program database has helped a lot in evaluating that. And then Bruce mentioned earlier, but we brought Shannon Letts on board to head that up. She's got a phenomenal track record at Walmart. It's going bring some great experience to that, so she'll be heading all that up going forward. Also out there is the possibility of different concepts that we're working on.
Too early to say too much about that. Certainly in the near term, most of our growth will be in the core existing format. But we do think it's an opportunity and we'll validate it step by step as we go forward. But we think there's the opportunity to have that be a very meaningful lever of growth over the coming years.
Okay, great. So I will, again, just to prompt the audience, if you'd like to ask a question, you can submit the question below. Maybe let's stick on the topic of the stores. Several years ago, the company had embarked on a big store remodel program called Store of the Future. Bruce, you sort of inherited that, but you guys did a number of remodels in 2019.
And then coming into 2020, at least at the beginning of 2020, you said you were going to put that initiative on pause. So maybe give us a sense of how you think about store remodels going forward. Is it Store of the Future two point zero? Do you not seeing the returns that warrant putting money into older stores? How should the audience think about it?
Yeah, I'll start that one off, Jonathan, and maybe you can add a little bit to it. Yeah, you know, first off, and I think I've mentioned this before in other meetings, Store of the Future was an initiative. It wasn't necessarily a strategy and it was in play. And when I joined the company, it was in its early form. And so 2019, we were still learning.
And what we learned about it is that the investment in the remodel or Store of the Future and expansion of those stores had a low return. And so that's why we backed up and thought about we need a better strategy, which is where we came together with Operation North Star, which accentuated higher returning initiatives like you're seeing with the Lafayette Q line pantry optimization. How do we make their stores not just brick and mortar, but an omni store experience, and how do we start bringing back deals and other things, and what's next in adjacent and white space, etcetera. So really, our Store of the Future is really an emphasis on becoming a better omni store, And that's going to be packaged together into what I would call a store investment or store evolution program where we repaint the stores, clean up the floors, make it a better, more pleasant, better branded store. We've got a couple of different versions out there across there, but not a heavy investment in terms of what the initial Store of the Future model was, but an investment to bring up the brand standards along with these new strategic initiatives that have a much higher return and it's enjoyed by our customers and our shareholders.
So Jonathan, if you want to add to that.
No, think you covered it, Bruce. It was a pretty expensive program, the full bore Store of the Future program, and the initial lift we got, and again, as we alluded to, that program was in place before any of Bruce or Jack or I got here. The initial lifts had looked pretty good, but they started to fade a little bit and then the later tranches weren't delivering it, and when you looked at it on an ROI basis, it was just hard to justify that with our model. And to Bruce's point, we had other things we could invest in with much higher ROIs. And then what we've also done now is break out that Store of the Future into component parts, which were repositioning furniture to be front and center, some basic refresh, remodel CapEx, cleaning up the bathrooms, the floors, and then some other components which were around the sort of overall store experience and environment.
So we're looking at each of those three pieces separately. There are still situations where moving furniture front and center will make sense depending on the characteristics of particular stores. But as Bruce said, we're looking at through a different lens, more of a store evolution program. We do expect that over time we'll need to touch most of our stores with elements of that, but it will vary depending on the store, and we don't think the very expensive full Store of the Future conversion is appropriate for most of our stores at this point.
Okay, wonderful. So with nearly ten minutes left, we're starting to get a fair amount of questions from the audience. So, one, that I'd like to ask as a follow-up to some recent comments would just be on CapEx. So it might be a little too early to give us an exact number for 2021, but you guys are talking about, moving towards healthy store growth. You've talked about needing to expand DC capacity.
Maybe at a sort of high level, should we expect sort of a notable jump to CapEx dollars from prior years as we think about maybe the next two years?
Peter, I'll take that one. So we do expect CapEx to be somewhat higher in 2021 than in 2020, but we don't expect it to go back to the levels we were at in 2018, '20 '19, so probably somewhere in between, maybe very high 100s is where we would expect to be for 2021 at this point, and that embeds investments we think we need to make. 'twenty two obviously will be a function partly, as you alluded to, store count, but that's broadly where we expect to be in 'twenty one.
Okay, great. And of course, you guys do have quite a bit of cash to work with. So a pickup in CapEx, you certainly have the ability to fund that. So maybe on the subject of cash, there was a question around share repurchase. And maybe could you think could you give us an idea, on how you guys are approaching share repurchases so far?
Do you primarily use some sort of 10b5-one plan for systematic purchases or in a case like today where the stock is down, could you also look to be opportunistic and maybe accelerate the pace of buyback?
Yeah, I'll take that one. So yeah, we typically do, last year, repurchase through 10b5-one plans, and we put them in place early in the quarter. But to your point, they are structured so when there are significant dips, we become more aggressive. But it's typically based on a pre set plan coming into the quarter, and as you've seen, we have been active quarter to date with share repurchases continuing the pace at which we were running through Q3. Generally, we would expect to keep doing this.
Very good. So let's we'll keep on the audience questions. So we talked about closeouts a little bit. So there is a specific question around the inventory levels. What does the inventory level look like for the closeout space?
And as you're moving into closeouts, do
you
see competition, from closeouts from some of the the traditional off price players?
Yeah. You wanted to take that, Bruce. So so I would say that, you know, and I I alluded to this earlier. We we believe that there's big opportunity for us to grow. And so in one sense, we're out there looking for more inventory.
We're seeing really high and quick sell throughs on the inventory that we're getting on closeouts, and we're happy with its performance. So we're going to keep seizing opportunities. To the competitive set, yeah, if you look at the last year, you've talked about even the manufacturing side of the business and just what's happening with global supply chain. There's less in the market, but we're being smarter and more thoughtful about how we approach those, and we're getting what we would say is much more than we've gotten before, and we're gonna keep on that track. So lower supply of of some closeouts, but us for us, it's about more supply that we've been getting and high sell throughs and being really successful.
And we think that's a huge opportunity to keep growing because our customers keep buying it.
I would just add to that. Before this year, we primarily played closeouts, played in closeouts only in the food and consumables aspect. We had shrunk down to food and consumables. Now we've got every Jack's got every one of his buyers, with maybe the exception of seasonal to some degree, for obvious reasons, in the market looking. So that's just opening up doors everywhere in new supply.
That's when you start from zero, it's a nice base to build off of the network. That's what we're seeing.
Okay. All right, great. I've got about five minutes left, so we'll address a few more questions from the audience. This one, maybe we'll start with Bruce. It's also maybe a bit of a financial question for Jonathan.
It's on the digital progress that you're making. And can you discuss the margin profile digital, in aggregate, relative to the the the retail business? And then are there distinct differences between BOPIS, you know, curbside, ship from home or excuse me, ship to home from store? And lastly, sum it all up, do you see a path to profitability on the digital sales?
Yeah. I'll start this, and Jonathan, if you can add some numbers. The way that we have grown the digital channel has been very thoughtful. When I started back in fall of 'eighteen, like I said, we were doing probably around $46,000,000 in total sales and we're unprofitable. We didn't make money on We are now, we've been profitable since 2019, and we've grown into that.
And I think it's because the way that we've approached it, the margin rate on a buy online pickup in store is comparable to in store, and curbside just adds maybe a slight labor component, which we've been able to absorb. So that's making up at least half of all e commerce digital channel sales, maybe even a little bit above that. And then the relationships that we've built with Instacart allows us to we pay a fee, but we've also passed on that in terms of making a profitability there, maybe a little bit less than what you'd see in store, but still profitable. And the same thing with our pickup delivery. And as we think about the 47 store hubs, if you will, doing the two day, that's a lesser cost that we pass on to the customer once again.
All of these in a very productive manner are growing their business. And Jonathan, maybe you can elaborate a little bit more on the numbers. But it's always been our intent to grow this business in an exciting manner, but also in a profitable manner.
Yeah, overall business now is significantly profitable, as Bruce said. Economics were as Bruce described them. For the direct, the pure direct business from the DC, that's closer to a breakeven proposition, but the bogus and the curbside are all very significantly profitable. And then the ship from store piece, it's not as profitable as a pure in store purchase, but we think a lot of those sales appear to be incremental, because they're enabling us to use inventory that's in the stores to fulfil e com orders that might otherwise have gone unfulfilled. So overall, we're very happy with the economics and where they're headed.
Okay, good. So another question is looking at maybe it's a sort of getting a line of, a little bit of guidance, so I'll I'll frame it up more big picture. But any way to think about range of outcomes for, 2021 same store sales growth? Obviously, you're gonna to face very tough comparisons, but at the same time, you have quite a number of initiatives, and you're lapping some inventory shortages. At a high level, how are you guys thinking about 2021 and the various range of outcomes?
Yeah, I mean it's very complicated, Peter, as you say, because there are moving parts in every quarter based on A, what will be happening this year, so stimulus is now starting to have an impact, as we talked about. It could be another round of stimulus that could be very significant if that comes along, particularly if it's anywhere near the numbers that are being talked about. Then we've got, you know, we're going to be lapping stock up in March, and we're going be lapping the first round of stimulus after that, nesting trend, shortage of seasonal inventory in the fourth quarter. So I think the truth is there isn't a single overall view of the year we can give. We've got to look it quarter by quarter really to build it up, and certainly that's how we're managing it, is to look very closely quarter by quarter, month by month, week by week, where we think we're going to be, and there are lot of puts and takes,
and I think we'll give a
lot more color on that when we get to the March earnings call.
Okay, great. So maybe time for one more question. We'll talk kind of big picture around the EBITEBITDA margins. So go back maybe ten years ago, the Big Lots did achieve the EBIT margin of about 7%. Over a number of years, the EBIT margin moved down to 4% in 2019.
And now you're tracking a little bit below, closer to that 7% after the strong 2020. So how should we think about the long term opportunity with EBITDA margin? Is 10% something that you think can be achieved and sustained, or is that something at this point that maybe is, I think, in the past?
I'll answer quickly since we're running out of time. Great question. This business, our business, is all about value. In fact, I'm actually considering changing the name of associates from associates to value creators because of value that we want to build with our customers and each other, communities we serve, and most importantly, the investors. We are building a model, a multi year model, where we take all these inputs and we track out what will be our free cash flow and how we want to return that to invest in our company and also return to shareholders.
So it's premature for us to talk about that. We do think there's upside and we'll work towards our 21 plan and updating you and the community, on our progress there. But we're thinking in multi years long term, and we think we've got upside potential for growth on Olin.
Okay. Well, that's great. We are, unfortunately out of time, so we will, leave it there. But, Bruce, Jonathan and Jack, thank you very much, for your time and for taking some time to answer questions for us today. Certainly, good luck with the the the coming year.
Sounds like there's a lot of, exciting things going on.
Thank you. Thanks, David.