David Campisi - CEO Tim Johnson - CFO Andy Regrut - Vice President, IR

Peter Keith - Piper Jaffray Paul Trussell - Deutsche Bank. Patrick McKeever - MKM Partners David Mann - Johnson Rice & Company Jeff Stein - Northcoast Research Anthony Chukumba - BB&T Capital Markets Dutch Fox - FBR Capital Markets Matthew Boss - JPMorgan Meredith Adler - Barclays Capital Joseph Feldman - Telsey Advisory Group Dan Wewer - Raymond James

Ladies and gentlemen, welcome to the Big Lots First Quarter 2015 Teleconference. This call is being recorded. During this session, all lines will be muted until the question-and-answer portion of the call. [Operator Instructions] At this time, I’d like to introduce today’s first speaker, Andy Regrut, Vice President of Investor Relations.

Thanks, Vicki, and thank you, everyone for joining us for our first quarter conference call. With me here today in Columbus are David Campisi, our CEO and President and Tim Johnson, Executive Vice President, Chief Financial Officer. Before we get started, I’d like to remind you that any forward-looking statements we make on today’s call involve risks and uncertainties and are subject to our Safe Harbor provisions as stated in our press release and our SEC filings, and that actual results can differ materially from those described in our forward-looking statements. All commentary today is focused on adjusted non-GAAP results. This morning, David will start the call with a few opening comments; TJ will review the financial highlights from the quarter and the outlook for fiscal 2015. And David will complete our prepared remarks before taking your questions. With that, I’ll turn the call over to David.

Thanks, Andy, and good morning, everyone. I’m pleased to share once again this quarter our results were solidly in line with our guidance, and we delivered on our commitments. Comps increased 1.6% in Q1 representing the fifth consecutive quarter of positive comps, something Big hasn’t accomplished since 2006, 2007 timeframe. And EPS was at the high end of the range we provided in March. Sales cadence throughout the quarter was inline with our expectations we communicated to you 90 days ago. February was challenged by harsh weather conditions that plagued much of the U.S. However, as expected, trends improved comps grew up 2% to 3%, for the combined periods of April and -- March and April or Marpil as we like to call it as weather patterns began to normalize. From a merchandising perspective, four key categories central to our SPP were once again the biggest winners and show the largest amount of comp growth. Furniture was the top performer, up low double digits as upholstery and mattresses posted strong results with noticeable improvement in the last two months of the quarter. Q1 is a peak selling season for furniture and Martha, Richard and their teams did a great job working with the stores to prepare for and execute during this critical time. Easy leasing continues to be a major driver as we experience a low double-digit in furniture sales for the stores in the first year of the program. A mid single digit lift for the stores which are now in year two of the program were still comping the comp. Soft Home was up mid single digits with strength in back, area rugs, utility and fashion bedding. Martha, Kevin and their teams have embraced the disciplines of QBFV or quality, brand, fashion and value to improve our merchandise assortments. Jennifer has responded positively to the new choices and the improved quality in our stores. Two additional areas benefiting from QBFV are food prep and table top, both posted strong gains in the quarter. The food category was up mid single digits in Q1, another solid performance against low double-digit comps in Q1 last year. We have completed the rollout of freezer coolers and are now SNAP eligible in approximately 1,300 stores. This completes a multi-year test and rollout initiative, which was executed with great precision by a collaborative and cross-functional team across the entire business. Great job by the team and we’ve taken down a barrier for Jennifer in our stores and finally consumables, up low double digits. Household chemicals and pet were the best performers once again this quarter. And we recently introduced two new captive labels to the business to enhance our consistency and improve Jennifer's overall shopping experience. Our b*loved brand offers Jennifer affordable diapers and infant care products, while AKC Select is an exclusive dog product line in partnership with the American Kennel Club. Seasonal comps were down for the first quarter, largely due to weather with some level of impact to the West coast port strikes playing into the equation. Regardless, I'm confident in the assortments for our two biggest businesses of lawn and garden and summer. The content looks much improved as does the quality and in areas of the country where weather was normal, our business was just fine. Also included in seasonal results, reclassifications which were intentionally downsized like toys or part of the Edit to Amplify from a year-ago like books and sporting goods. As expected, the deemphasized categories of electronics and hard home were also down to last year. I'm happy to tell you we’ve now fully anniversaried the Edit to Exit activity from ’13 and ’14, and in particular these categories which were significantly impacted. The teams have stayed the course; managed their business and were essentially on plan for Q1. From the marketing perspective, we introduced Jennifer to a new campaign -- ad campaign, Shop Big Lots First, with clever television spots and online videos reminding Jennifer to always start a shopping trip at Big Lots. We expanded our reach online with social media and digital content and recently launched Big Lots Latino. This new online platform is just one additional step towards diversifying up from a multicultural perspective. The marketing team also opportunistically leveraged the launch of b*loved and AKC Select brands with an online campaign for Jennifer to vote her favorites hashtag babies versus puppies. Our marketing team is active and looking for new and different ways to connect with Jennifer. And finally, our store’s organization. We are making excellent progress in our store evolution. Roles and responsibilities have been clearly defined and communicated to our stores team and have been warmly embraced. We have implemented and trained around new processes and equipment for our Dock to Stock initiative. Dock to Stock is our name for the process with which efficiently moves product off our trucks through the backroom and on to the sales floor. Also after a successful pilot, we’ve started the rollout of our automated labor scheduling system in Q2 and progress to date has been encouraging. Additionally, the revolution will continue into Q3 with furniture sales training for all the important holiday selling period. This has been a monumental effort, the document process, and training materials, to communicate with all our regions, districts and stores and manage change. Lisa, Nick, and their teams, human resources from a training perspective and the general office have collaborated extremely well and done an incredible job to date. We are far from done and are at the beginning of the beginning. But I believe over the next several quarters and years, the store revolution will be a game changer for Big Lots. The three legged store of merchandising, marketing, and stores have truly raised their game over the last 12 plus months. And I'm convinced, Jennifer is everywhere and others have noticed and appreciate the change here at Big Lots. In fact, last week [indiscernible] Big Lots was recognized in Brand Finance 2015 ranking of the top 500 U.S brands as part of the billion-dollar brands club. A significant accomplishment if you consider where we were just too short years ago. Before I turn the call over to TJ, I want to recognize the team's hard work on our e-commerce initiative or else we call it internally BLAST, or Big Lots Anytime Store. Over the last 90 days, the team led by Stu and Andy, with oversight from executive leadership team have made meaningful progress towards our goal of selling online by the January-February timeframe. There are significant amount of our associates from all walks of the business who are involved along with a hard working group of consultants, all with one goal to be able to transact with Jennifer online. She has asked for online shopping experience, told us what she would like to buy, and actually even helped us to design the Web site and experience. I’m excited about e-commerce and our future omni-channel opportunities. And with that, I'll turn the call over to TJ for more insight on the financials.

Thanks David and good morning everyone. Net sales from continuing operations for the first quarter of fiscal 2015 were $1.28 billion, essentially flat with last year. Comparable store sales for stores opened at least 15 months increased 1.6%, which compares to our guidance of plus 1% to plus 2%. Food at low doubles, soft home mid singles, food mid singles, and consumables at low singles were the key drivers. As David mentioned, we’re pleased with this result, particularly given the challenging weather in the month of February. On our last call, we indicated February was a tough month and we expected sales trends to accelerate in the combined period of March and April or Marpil. This is exactly what did occur as Marpil comps were up in the high 2s which positions us well as we head into Q2. Income from continuing operations for the first quarter was $32.3 million or $0.60 per diluted share, which compares to our guidance range of $0.55 to $0.60 per diluted share and represents a 20% increase over the last year’s income from continuing operations of $0.50. Our gross margin rate for the quarter was 39.4%; up 90 basis points compared to last year’s Q1 rate. This was consistent with our expectation as we anniversaried the markdown activity associated with Edit to Amplify from a year-ago. Total expense dollars were $451 million and the expense rate of 35.3% was up approximately 50 basis points compared to last year. This performance was slightly higher than our expectations. Depreciation expense was higher and resulted in SPP investments including coolers and freezers, EAS and alarm systems for our stores and our register refresh program designed to increase productivity and enhance Jennifer shopping experience. All of this was expected. An unexpected increase or deleveraging event came in the form of severance related costs of approximately $2 million and pushed our deleverage a little higher than we originally anticipated. Moving on to the balance sheet, inventory ended the first quarter of fiscal 2015 at $835 million, roughly flat to last year. On a per store basis, inventory was up slightly, but this was offset by a lower store count year-over-year. During Q1, we opened one new store with no store closings, leaving us with 1,461 stores and total selling square footage of 32 million. Capital expenditures for the first quarter were $39.3 million compared to $16 million last year and depreciation expense was $31.2 million, an increase of $2.4 million to last year. The increase in CapEx for Q1 was planned and directly related to our SPP investments in coolers and freezers, our register refresh program, and our e-commerce initiative. We ended the first quarter with $67 million of cash and cash equivalents and $41 million of borrowing under our credit facility. This compared to $67 million of cash and cash equivalents and $54 million of borrowings under our credit facility last year. Our use of cash generated by continuing operations was focused on returning cash to shareholders through both dividends and repurchases, and lowering our overall debt levels. As noted in our press release this morning, we have extended our $700 million five-year unsecured credit facility. The strength of our credit profile, operations, balance sheet, and cash flow generation enabled us to work collaboratively with our existing bank group to extend the term of the facility by nearly two years. The credit facility now covers a five-year period expiring in March 2020 -- May 2020, excuse me, and provides us lower rates and fees and maintains a similar structure in financial covenants at our previous facility. Additionally, working with a bang group we were able to expand the types of indebtedness or financing arrangements the Company can enter into in the future. In the first quarter of fiscal 2015, we invested $35 million to repurchase 753,000 shares leaving us with a $165 million available on our current share repurchase authorization as we began second quarter. Additionally, we returned $10 million to shareholders with our quarterly dividend payment in April of $0.19 per common share. As noted in the separate press release this morning, our Board of Directors declared a quarterly cash dividend for the second quarter of fiscal 2015, also at $0.19 per share. This dividend is payable on June 26 of 2015 to shareholders of record as of the close of business of June 12. Now turning to guidance for Q2, we expect income from continuing operations to be in the range of $0.31 to $0.35 per diluted share, compared to income from continuing operations of $0.31 per diluted share in the second quarter of fiscal 2014. Our guidance is based on a comparable store sales increase in the 2% to 3% range compared to a 1.7% increase in Q1 of fiscal 2014 with total sales essentially flattish compared to last year due to the lower store count. The gross margin rate for second quarter is expected to be essentially flat compared to last year as our expenses -- as a percent of sales. In terms of our outlook for the full-year, we’ve narrowed our range of annual guidance of income from continuing operations to be in the range of $2.80 to $2.90 per diluted share compared to prior guidance of $2.75 to $2.90 per diluted share. This change is reflective of our Q1 performance and plans for the balance of the year. This level of earnings will represent a 14% to 18% increase over income from continuing operations of $2.46 per diluted share in 2014. Additionally, this guidance is based on our comparable store sales increase in the low single digits and total sales essentially flat compared to last year. We estimate this financial performance would result in cash flow of approximately $175 million. One final observation on guidance, the numbers we’re sharing today albeit slightly different than published analyst estimates, are in line with our own internal expectations, both in total and from a calendarization perspective. Looking at Q1 actuals and Q2 expectations, spring season EPS is expected to increase 12% to 17% range, fall season or Q3 and Q4 EPS is expected to increase in a similar range depending on if you look at the quarters or try to squeeze it out utilizing the full-year. Our team is on track to our annual operating profit goals and confident about our outlook for the balance of fiscal ’15. So with that, I’ll turn it back over to David.

Thanks, TJ. Before we open-up the lines for questions, I want to share a few thoughts in closing. I recently had my two-year anniversary with Big Lots. And when I look back and consider where we came from, I could not be more proud of this team and what we’ve accomplished together. We established mission, vision, values and we live them every day. We have significantly improved our Company culture and we measure and hold ourselves accountable. We developed the SPP focused on three key pillars, Jennifer, our associates, and our shareholders. We completely changed our buying processes and disciplines, IEQBFV. We focused our portfolio on U.S retail operations with the wind down of our Canadian and wholesale businesses. We have driven five consecutive quarters of positive comps and delivered upon our financial commitments in each and every quarter. We returned over $320 million of cash to our shareholders through dividends and share repurchase activities. We have a seasoned group of professionals and have attracted top talent. I'm confident in our leadership team. In fact, just last week we announced the appointment of Rocky Robbins as General Counsel and Corporate Secretary. Rocky is highly respected member of the legal community and will be a tremendous fit to further enhance our culture and contribute to the long-term success of our strategic plan. Next, we’re managing our business for the next three to five years, not quarter-to-quarter. We are making investments for the future. Recently we announced to our associates our intention to relocate to a new, state-of-the-art distribution center in California. The new facility will be equipped with upgraded hardware, vehicles and systems to support more West coast Big Lots stores and potentially our e-commerce platform. We expect the new facility to open in mid 2017 and will require modest levels of net investment. Additionally, we have established the Big Lots Foundation and our associates have enthusiastically supported our philanthropic efforts focused on healthcare, housing, hunger and education, elevating the perception of Big Lots in our communities. And finally, working with our Board, the combination of enhanced governance practices and consistent performance enabled us to receive very high marks from our shareholders during this most recent proxy season, all major accomplishments in two short years. Next I want to say a very sincere thank you to our loyal and long-term shareholder base for their confidence. Yesterday's annual meeting we received across-the-board support for our directors and all our proposals presented. Under our slate, our Board of Directors under went a significant change this year. I’d like to thank Peter Hayes, Brenda Lauderback, Jim Tener, and Denny Tischkoff for their leadership, support of our strategy, and turnaround efforts, and for their many years of dedicated service. I also want to welcome Marla Gottschalk, Cynthia Jamison, Nancy Reardon and Wendy Schoppert to our Board. We're thrilled to have their new perspective, fresh thinking, and insight. We are also proud of the fact the composition of our independent Board members is equally balanced both male and female. We are walking the walk as we focus on Jennifer and our future. Additionally, at yesterday's annual meeting, you awarded us with another resounding 4 on our say on pay proposal. We, along with our Board, have worked extremely hard to solicit feedback and reshape our Company from a governance and compensation perspective. Our comp programs are heavily focused on performance, just as you asked for and we are delivering. And my closing remarks wouldn't be complete without thanking our associates and our stores, our distribution centers, and along with the office here in Columbus for another solid performance this quarter. We are one team with one goal where the four Cs, curiosity, courage, confidence, and consistency are evident each and every day. It's not business as usual at Big Lots, and I appreciate your support of the strategy and the engagement in our journey. And with that, I'll turn the call back over to Andy.

Thanks David. One final comment. During Q1, two additional sell-side analysts initiated coverage on Big, increasing the total number of analysts to 17. We are very appreciative of the support. And in an effort to give you an opportunity this morning, please ask just one question. We will keep the lines opened if time permits for our second round of questions. Feel free to get back into the queue if you have additional areas you'd like to discuss. Alternatively, I’ll be available after today's call. Vicki, we’d now like to open the lines for questions.

[Operator Instructions] We will take our first question from Peter Keith with Piper Jaffray.

Hi. Thanks. Good morning, everyone. David, I just want to ask a high-level question on the merchandising. Clearly, there has been a lot of changes at the store and it's very evident just from walking stores across the country. I’m wondering if you feel if a lot of the heavy lifting and big changes already done at this point and what we might see going forward is just ongoing tweaks? And then as a related point to that, it seems like the one area there hasn’t been a lot of change has been the furniture category, maybe that’s a misinterpretation, but I’m wondering if you could comment on that as well? Thank you.

Sure. Thanks, Peter. The merchandising process is always going to be evolving. And I tell my folks all the time, it drives them nuts sometimes that I’d say that we are at the beginning of the beginning. It’s really about honing in and sharpening the saw and always making improvement and driving the QBFV and other challenges that we put in front of ourselves. I’d say that that discipline obviously is working and you can’t loose focus on that or you become complacent. So it’s evolving and will continue to evolve and we believe we -- a lot of the heavy lifting is done, however, its continuous improvement. So we will continue to improve in all of our categories throughout the area. And as we identify those five big categories where we win, and then we’ve the convenience businesses that are really come into life and you see that evidence in the store. As far as the furniture department, I’d tell you that Martha has been running that thing now without a divisional for quite some time and she's working directly obviously with the team and she done an outstanding job of really getting them focused. And there have been changes in there, you just may not see them, but there is some improvement in price points and quality and especially in some price points in upholstery and in also in mattresses. Those two areas have really, really stepped up and I think in case goods we are seeing the quality improvements as well. So again, it's just an evolving process that we will never let up on. It's just the wave [ph]. That's what real merchants do, they never ever satisfy.

We go next to Paul Trussell with Deutsche Bank.

Good morning. I want to focus on some category color. As we think about you guys fully anniversarying the Edit to Amplify, David, just can you help us understand what the change in trajectory of trends has been to date on those areas like hard home and electronics and toys that had been edited sharply a year-ago, and how do we expect that trend to go throughout the balance of the year? Second is on the seasonal category, and TJ, I believe you said that was down in the first quarter. Just help us understand the thought process as we head into 2Q, given that that category does step up in importance? And then lastly on the food side, I believe you said food was up mid single digits. If you can just give us a little bit more detail about the extent that some of the products in the coolers are resonating with customers and what kind of the cadence of how that is improving the cadence of trip frequency? Thank you.

Hey, Paul, it’s TJ. I heard three different things in there. So let me try to address the trajectory questions and ask David to maybe speak to the quality of assortments and how he feels about the business is going forward. I think first is a general statement. Let me kind of just share with everybody, because I know this is probably a question everybody has. In terms of guidance for the second quarter at a 2% to 3% comp, coming off of a 1.6 comp in the first quarter, we do see an acceleration in the overall store performance coming out of first quarter and second quarter. That is based on two things. That is based on comps in the month of Marpil -- Marpil, March and April combined where comps were up in the high 2s. It is based on May sales to date including the all-important Memorial Day weekend where comps are solidly in that 2% to 3% range. So we have seen acceleration coming out of the first quarter, but really in the back half of first quarter and we’ve seen that sustained in the month of May. In terms of category trajectory, furniture continues to outperform the store as expected. Soft home with expanded footage, which was an SPP initiative and executed at the end of first quarter, is also a leading category. Food, which we commented on as being up mid single digits. Internally we’d have hoped for a little bit more than that in the first quarter. However, we have got our arms around that business like no other. The team is doing a great job of responding to trends and I'm happy to say that as we started -- as we’ve started the second quarter, those food comps are more back up in the high single-digit range or where we expect them to be. So we feel very good about the food business going forward. That includes DSD coolers and freezers, as well as candidly the bigger part of the assortment is categories like specialty food, beverages, snacks, candy et cetera. So the team has done an excellent job navigating out of first quarter into second and we’ve seen that business respond. Consumables up low single digits in the first quarter. Still feel very good about that business, two additional private label brands which again enhanced that consistency from Jennifer. From a hard lines perspective, and electronics and accessories, you are right, we anniversaried the Edit to Amplify in first quarter and as we’ve seen early results in second quarter, those businesses have gone from high single-digit negatives or low double-digit negatives and are starting to approach flat to slightly down. So that's working as we’d have anticipated. You are correct; seasonal is a big business in second quarter. We have expectations particularly in lawn and garden and summer that it will go positive. However, please remember we actually downsized twice again in the first quarter of this year. That business will be negatively impacted, that rolls up into seasonal. That was planned, it's not a reaction. So what I'm trying to help you understand again from a trajectory standpoint and then David can certainly speak to the quality of what’s going on in the categories. From a trajectory standpoint, those things are happening in line with our plan, really no surprises there. I think the team between Rich and Lisa and Andy from a marketing perspective, they’ve got their hands on the wheel. Everything is working as we’d have anticipated. So, David?

Yes, Paul, just to add to that, I’d tell you back to what Peter asked about is it's a continuous improvement and tweaking of the businesses and I’d tell you the last weeks I sat through the planning meetings for all the businesses for spring 2016. And in those areas that we are now calling convenience businesses, electronics, home maintenance, stationery, et cetera that some of it sits in hard home and some of it sits obviously in electronics. The teams are doing an outstanding job of putting together plans as we continue to reduce some lineal footage as we’ve talked about in our SPP. It's not a one-year head, it's a three-year plan that will continue to evolve and we think the assortments in there have improved significantly and what I’m seeing for spring ’16 is significant improvement in electronics, home maintenance category, stationery strategy looks very solid. From a QBFV point of view, I couldn't be more excited and I think that what you need to know and TJ obviously talked about the trajectory. The businesses that we said, we were going to win in. We are winning in. And the strategy is absolutely working. There is nothing embedded in this, that's not. In fact, I’m more pleased than ever with how well Michelle’s team has managed electronics and parts of the accessory business and has made plan in the first quarter and they continue to perform at a level that we expected them to perform. And you know I believe by the time we get into ’16, those big headwinds will be behind us and those businesses will start to comp positive as well.

We will go next to Brad Thomas with KeyBanc Capital Markets.

Thank you. Good morning and let me add my congratulations on a nice start to the year here. My question is around traffic and how Jennifer is responding to all the changes in your stores. It’s clear from a P&L standpoint that we’re seeing positive impact, but I was hoping that you could talk a little bit more about what you’re seeing either in terms of the transaction trends, the early results that you’ve from the traffic counters or any other data that you’re able to share about how Jennifer is responding, particularly, in the stores that might be more ahead of the curve on things like furniture financing and the freezer cooler reset? Thank you.

Take that.

Yes, Brad, it’s TJ. We are measuring traffic now in all of our stores, and developing a baseline, looking at it week to week, day to day, to try to understand and get comfortable with the data. It's a nice byproduct that we are receiving as a result of rolling out EAS, or electronic article surveillance measurement in equipment in our stores. It's premature for us to comment on traffic levels though candidly. That is not a metric and conversion is not a metric that we’re holding our teams accountable to yet. That's a ’16 initiative as part of the store revolution that Nick and Lisa are leading. So I'm not going to comment on traffic or those metrics at this point. I’d just tell you that the challenges that we incurred in first quarter are going to be were predominantly transaction driven. Think about our prepared comments on whether particularly in certain markets of the country. The good news for us though is building out that basket, she is recognizing, Jennifer is recognizing and communicating back to us the improvements that she is seeing in our store. Not only from an execution standpoint although it’s still very early, but as David said from a QBFV standpoint. So, to have transactions to be lower than last year in first quarter, and still comp up 1.6% on top of a positive comp last year, it tells you some of our bigger businesses are working. We’re building out that basket. She sees the value. She’s willing to pay average item retail in certain categories. And importantly too, she’s filling out the basket with units. So from our perspective Brad and others who may have the question, I don’t want you to walk away feeling as if it was our plan that transactions should have been up in the first quarter. It was not. Those trends and that customer mindset we think takes longer to change than even just the 12 months we’ve been at it in 2014. Again from our perspective we’re very pleased with where we ended the first quarter and how we’ve started the second, and that’s what's most important from our perspective.

We’ll go next to Patrick McKeever with MKM Partners.

Thanks. Good morning everyone.

Just on furniture financing easy leasing, as you’ve extended that into I guess areas a little bit beyond the core furniture business grills and patio sets and what not. How has the response been there? And is there an opportunity I guess to kind of continue to expand the products that one can finance?

Yes, Patrick that’s a great question. We are very bullish on the easy leasing program and the opportunity for more and more customers to learn about financing furniture and other categories in our store. And that’s all based on results. That’s not a gut feel on the part of the team that’s based on results. I think in the prepared remarks we talked about stores that are now in year two of having financing available, they’re comping the comp. And in any given week Patrick those stores are seeing furniture comps throughout in the mid to high single digits on top of very strong performance in the prior year. So we do believe we are still to coin David’s phrase, we’re still at the beginning or the beginning on this one. The addition of Soft Home has been well received early. The expansion or really having the seasonal area of the store, big ticket seasonal available for the full spring season this year versus last year obviously is an opportunity for us. And as we look to the back half of the year candidly as part of the store revolution that Lisa and Nick are leading. There will be an expanded furniture sales training program available to our teams for the first time maybe ever in terms of the training that we’re providing them on how to raise that ring and really close the sale. Furniture financing or easy leasing is another tool for them to be able to execute to that. So we feel like we’re still very early in developing out this program with our customers. Again keeping in mind that, that furniture customer maybe in the market to buy furniture, maybe once or twice a year if that. So for those customers who haven’t been in the market it’s not inconceivable to think they may not know we have a furniture financing program. So that’s where Andy and his team from a marketing perspective really take over too and have made a big deal about it in circular, in print, socially, in some of the loyalty card programs and couponing activities that we’ve tested here in the first quarter. So we could talk about furniture financing probably for a very long time, but I’ll stop there.

And then just on, it’s kind of a related question, not trying to get a second one in necessarily, maybe. But on the port situation, why wouldn’t that have had more of an impact on your furniture business. I know you do a big business in mattresses and a lot of that is sourced domestically. But it seems like I’d have thought you would have seen some impact. Did you have to just on, some of the ready to assemble and in some other areas of the furniture business. Did you have to do any kind of rerouting or early delivery or is that -- or take early delivery anything like that. Where there any issues there I guess is my question on the port situation.

Yes, Patrick this is David. It’s a good question. I’d tell you in the prepared remarks I called out that there was a little disruption in the port activity. Primarily more impact in the seasonal area with patio furniture, lawn and garden, much lesser degree in furniture. Obviously as you know Serta, Seeley, those guys are all domestic. So, the upholstery piece actually has factories here in the U.S. as does the United. So we really didn’t have big backups on what we call the kits that come in from Asia and then they get built here, the upholstery and so on. So that area was not really impacted. I’d just tell you that Carlos’s team, our guys that are in that transportation area just we’re really out in front of it, and I think we talked about this on the last call about Christmas and how we felt about coming into the first quarter. They really have just been on top of it. And I think that that’s been our key as managing to get those containers out of there. We were behind I’d say early on in the first quarter. There was probably a three to four week concern on some items and categories, but we managed to get it caught up and we’re absolutely fine now and it’s behind us. But it really did not have any material impact on the business.

Got it. Okay. Thanks David.

You bet.

We’ll go next to David Mann with Johnson Rice & Company.

Yes. Thank you. Good morning. A question about what you’re doing in marketing. It’s seen a lot more use of coupons in some of the messaging to your Buzz Club customers. So I’m just curious, can you talk a little bit more about that activity? What kind of performance or response you’re seeing there. What we should expect in the future? And then also in terms of the Texas market, a big market for you, any comments about how that region is performing given some of the oil price declines and also anything from the floods going on there in May having an impact on your business? Thank you.

Yes, it’s TJ. So I’ll play marketing guide for a minute. Jennifer loves the coupons, she sees value in coupons. And that’s what we’re all about, surprising here in every hour, every day with value. So it is a little bit of a new tool for us. And we were very pleased with the response we got when we executed some of those types of events in first quarter. Additionally I want to point out from an inventory and merchandise management standpoint we were able to execute those, all within our markdown plan and markdown budget which again speaks to the disciplines that David mentioned in his prepared comments. So we feel very good about the opportunity. At certain times of the year to utilize that if need be. The second part of your question?

Texas?

Texas, yes. I’m sorry. That’s a great call out. From our perspective again the results that we saw in March and April and particularly here in the last couple of weeks of May are encouraged to us in total recognizing there were certain regions of the country particularly Texas where we had a tough go over the last couple of weeks. As you know it’s a big state for us well over 100 stores, the majority if not all of those comp stores. So to be able to execute to deliver the comp in first quarter Marpil and in early May is very encouraging to us. To my knowledge we have not had any significant store closure activity, any significant damage related to our stores. And really that is a very seasoned team down in Texas led by one of our more senior regional team leaders and I’m sure they are working extremely hard to be ready for Jennifer every day. We watch sales every hour or every day David, as you know and avoid in the last couple of days, it looks like maybe people are starting to come out again. So hopefully the toughest part is behind us. But whether its Texas, whether its other states or whether it’s a deal we had last year that we don’t have this year in certain category, that’s where we get paid to manage as a business. And I think again the consistency that David and the new team have brought from merchandising standpoint helps us whether those are in the -- helps us whether those difficult times whereas in the past we weren’t as good at that. So, I’d take it as a very positive sign that we’re able to work our way through more difficult times on a regular basis now and not just on an exception basis.

Great. Thank you.

[Operator Instructions] We’ll go next to Jeff Stein with Northcoast Research.

Okay. I’ll ask a finance question. TJ at the low end of your guidance range for the second quarter, we’re kind of looking at flat. And I know that expenses and so forth can be a little bit lumpy quarter-to-quarter but given that you’ve got kind of a flat expense leverage point. If you do only a 2% comp, why the flat earnings expectation, maybe you could talk about kind of what's going on in the P&L there? Thanks.

I’m glad you asked David -- Jeff, I’m glad you asked the finance question. I think it’s important to know, because I know that again a number of models had different expectations for second quarter than we’ve guided to or that we’re talking about today. I think it’s real important for everybody to understand in many areas of the business we are investing ahead of benefit. Not necessarily always from a CapEx standpoint but also from an expense standpoint. So for instance, in first and in the second quarter again the store resolution and the low out of all the different initiatives in training related to those initiatives being Dock to Stock, automated labor scheduling and coming sooner in the first -- third quarter furniture sales training, those are investments ahead of a benefit. Additionally from an asset production standpoint, in terms of EAS systems, alarming our stores, cameras in our stores, all of those different activities that have been going on there, are now complete as of the end of the first quarter. There is expense associated with those and really the benefit comes later as we move through 2015 we start to see hopefully markdown activity as well as return activity. And then as we get into the end of the year, when we take our next physical inventory we would expect lower shirk results. So in many regards in the first and second quarter we’re investing ahead of benefit to come later in the year. So that’s why it was so important that we wanted to callout the calendarization of how we are guiding is very consistent with how we plan the business and what our expectations were internally.

Okay. And just a real quick one on CapEx. It looked like you might go back to kind of a $100 million to $110 million of CapEx following I guess kind of a peak this year but with the new DC or relocation of DC in California, is that going to change your CapEx outlook appreciably as you move into 2016 and ’17?

There will be CapEx incremental to our original SPP that will hit primarily in 2016. As soon as we are finalized with, kind of I’ll say the financing aspect of how we’re going to go about building and relocating our distribution center, I’ll be more prepared to speak to those comments. But there will be CapEx coming in 2016 that might not have been -- was not in our originally SPP expectations. Having said that, from a cash flow standpoint from following the company for a long time now Jeff that we own all five of our distribution centers including the one we anticipate relocating in California. That location is of high value. Its on distribution center row so to speak in the inland empire and we don’t see a need for two distribution centers in California which is why we’re going to relocate here some time in the next couple of years. So from a cash flow standpoint it’s important to understand obviously we will be looking at some point to market that building and as we get prepared to move into the new ones. So CapEx yes, in 2016, cash flow opportunity to partially offset if not fully offset. The CapEx need is what we’re looking at as we market that building here in the next several quarters.

Okay. Thanks a lot.

We’ll go next to Anthony Chukumba with BB&T Capital Markets.

Good morning. Thanks for taking my question and I promise to actually limit it to one question. So you talked about the fact that your seasonal business was negatively impacted by weather in the first quarter and then you also talked about the fact that the West Coast port slowdown only really impacted your seasonal business. So I guess my one question is, do you then have any sort of incremental markdown risk in the second quarter going forward in your seasonal business? Thank you.

Yes, Anthony this is TJ. I guess from our perspective there are a lot of questions around what amount of business do you recover versus what is permanently gone. We want that every day, every week, follow a glide pass. Actually the team has daily forecast when it comes to the seasonal business. So we’re as on top of it as we can be. Could there be a little bit of incremental markdown risk in the second quarter? That’s absolutely a possibility. So I wouldn’t want to diminish that. But I guess from our perspective what we’re encouraged by is the fact that almost to the day when we see weather trends improve whether its in Texas or California, in warmer weather markets or whether its here in Columbus, Ohio and its now in the 80’s instead of the high 60’s or low 70’s. We see those businesses respond. So I think the important thing for us is we’re all over it from am daily, weekly forecasting standpoint. We are looking at how to flow the inventory maybe differently than the original plan, meaning we know different market are responding differently based on their weather patterns. So there is a lot of detail that goes into understand what our business looks like everyday. We’re doing the best we can with it. We think we’ve tried to capture what if any risk there might be. And candidly if we need to make decisions and take more markdowns and seasonal and look at other promotions and other areas that might not be as important in the second quarter, we will do that. Coming out of the second quarter clean, on inventory compared to last year or compared to plan as a priority. As you know the seasonal business particularly lawn and garden and patio furniture et cetera does have a longer life than say Christmas trim or maybe even pools. So, a longwinded answer but the team is all over it. We’ve got an experienced team in that area. We feel very good about what we’re offering but we’ll work our way through the second quarter as best as we can.

That’s helpful. Thank you.

We’ll go next to Dutch Fox with FBR Capital Markets.

Yes. Good morning guys. So I wanted to ask little bit of a longer term question more forward looking. You guys have talked to your operating margin goals. It’s been about a year since your Analyst Day and you’ve broke out the detail on it. I was kind of wondering if you could give us an update about where now you view the longer term earnings power of this company, this platform. What kind of sales per square foot metrics you need to get it and how we should be looking at the longer term earnings power and in the light of what you’ve learned in the last year and also what seems to be some upcoming necessary investments in the business? Thank you.

Yes, Dutch its, TJ. We have not updated the long-term model, as you know candidly that’s something that we’re going to be going through here over the next few months with our Board of Directors and that would include an update on ’16, ’17 and as David mentioned, three to five years out where do we want to compete and how do we want to differentiate further. Having said that we delivered every single quarter on what we guided to from a financial standpoint on the last earnings call as we talked about annual guidance I mentioned to you that, in order for us to deliver on those SPP goals primarily I’m thinking about the 6% operating margin goal. We have to be towards the higher end of our guidance -- towards the higher end of that model which calls for a 2% to 3% comp. So we know 1.6% every quarter is not going to get it done and not going to get us there. I don’t know Dutch that we think that even that model; I know we think that that model does not at 170 bucks a foot and a 6% in operating margin rate. That just kind of gets us in the conversation. Our goal as a management team is obviously set much, much higher than that and looks much, much further out. So from our perspective we know that comps have to accelerate, and they have as we’ve come into second quarter which enabled us to guide the 2% to 3% instead of low singles. We believe we have a number of initiatives to drive top line going forward. It’s premature though for me to say and kind of update three years goals until we’ve really added that third year in now because it’s rolling and walk through that process and engage with our board. I’d just say that, again from an execution standpoint and a consistency standpoint that has long been a challenge for shareholders to get comfortable with the inconsistency in our business. I think we’ve taken down that barrier. We are more consistent today. We’ve got a team in place that is managing their business with much more discipline than we’ve had and I think we have total buy-in on the part of the team now extending on into the store revolution. So we feel very good about and feel like we’ve done exactly what we said we were going to do. We know we need to see some level of sustained acceleration in comps and we’re hopeful coming into second quarter that those trends are now starting to unfold just as we thought they would.

If I could just add one comment to Dutch is that, this is it, we’re in it for the long haul not the short haul, right. And so as we changed many, many habits and processes over the last 24 months and it was very well embraced by the BPARM teams. I’d just tell you that, I intentionally did not launch a very strong campaign on velocity, par lineal foot, units per door, peer week and that is the next level of conversation that’s taking place at this point and we’re challenging ourselves to do more. And when you talk about sales per square foot obviously we look at condo on a linear basis, and how much more productivity can we get in every four foot section. And those conversations are happening now about being bolder and thinking bigger. And again its -- this isn’t a one year fix. This is a long-term strategy that’s going to drive some of that operating power that you’re talking about over time. We just can't put a number to it yet, as we just continue to work our way through that. And I’d by the time we get to the end of the year or the first part of next year we’re going to have a much clear understanding of how big is Big.

That’s great. Thank you very much.

We’ll go next to Matthew Boss with JPMorgan.

Guys, nice quarter. So, I know you don’t break it out specifically, but could you speak to any changes in the traffic versus ticket composition over the past five quarterly positive comp versus the negative comps that you saw in 2012 and 2013? Again just any change in the composition between traffic and ticket that you’ve seen?

Yes, Matt I’d tell you that, directionally again absent markets that have weather absent, a tough February those, I’ll call them outliers but they’re part of our business. But I don’t think are a true indicator of how the business is performing. Directionally we have seen some level of improvement from a transaction standpoint. But again I want to caution when we’re talking about improvement it’s relative to the trend. I’m not sitting here and telling you that transactions were positive in the first quarter. They were not. We articulated that a little while ago. But I think from our perspective directionally in certain quarters where comps are stronger we have had some levels encouraging signs, it’s a long-term view though that we’re taking on this as David said and really from our estimation anyway we have traffic in our stores each and every day. We’re starting to understand better what conversion looks like and how big that opportunity could be. Hence the store revolutions roles and responsibilities, dock to stock, automated labor scheduling. Those are all tools that a store team leader, district team leaders, regional team leader now have to try to be better prepared to covert Jennifer when she’s in the store today than they’ve ever had before. Additionally, albeit small in terms of transactions, but big in terms of opportunity from a sales training standpoint in furniture that’s ahead of us. 2016 and measuring and holding teams accountable to conversion in that traffic that we’re working hard to generate each and every day. From our view that’s an opportunity that we’ve really not even touched the surface on. So, this is not something that we expected to turn overnight. We haven’t proved the consistency in our business clearly and maybe most importantly for, at least from standpoint and we talk about this a lot as an executive team. As we’ve come into the first quarter and we are up against positive comps for the first time in a long time, we are comping the comp. So a lot of positives happening in the business and from our perspective no real surprises, big surprises that have said to us the strategy need to shift move or change. And I think that’s important for everybody to understand.

Matt, I’d just add to that too. This is David, our guys have enthusiastically jumped all over this traffic counter thing in our stores and what Nick and Lisa and team are doing there is measuring prior weeks traffic to this weeks traffic as we build history and that’s the important thing is, this is the year of building history. So next year to TJ’s point we’ll be able to speak to it clear and we’ll also be able to hold our folks accountable for traffic and conversion. So it’s exciting because that we have a dashboard that we’re looking at on a daily basis, but it’s measuring last week to this week. So it can look a little goofy some days and drive me crazy. But the most important part of it is, is Nick’s and the seven regional team leaders are looking at it every day and pushing hard to improve our performance. And those are things that you guys need to understand out there. When we talk about the store revolution, not having traffic counter, not having cameras in the front of the store, not having cameras in the stock room, all these things that we’re doing are things that are, they’re loving it because we didn’t give them these tools. And they’re getting all the things they need, automated scheduling is going to be game changing for us as well. So again hopefully a year from now when you ask that question, we’ll be able to give you a very clear picture.

That’s great. And then just, quick housekeeping, on the model is 51 million to 52 million shares outstanding at the end of the year, is that still the embedded share count guide for the year?

The average number of diluted shares for the year, yes which can be different than outstanding as you know, but yes, that’s what we’re utilizing for our EPS estimates.

Okay. Great. Best of luck guys.

Thanks.

We’ll go next to Meredith Adler with Barclays.

Thanks for taking my question. I’ll just keep it simple. You’re working on e-commerce and you had at one time said that the guidance for this year didn't include any expenses you might spend on e-commerce. Do you have any kind of an update for us on what you think you’ll be spending? Is it going to change the outlook for earnings per share very much?

Meredith, its TJ. Actually let me clarify. I think what we said on the first -- or on the March call was that, embedded in our annual guidance is about a nickel a share drag. In terms of e-commerce expense again ahead of a benefit which in terms of a sales benefit comes in the form of 2016. I think what you might be remembering is, in our Investor Day when we talked about our goals of a 6% operating margin rate, there was no accounting for e-commerce in the related potential EPS drag in our SPP model. So that was totally a retail number. So for this year nickel drag to anticipate the next question we saw about a $0.5 million of expense in round numbers in the first quarter related to e-commerce. So again if you tax effect that, it was not quite a penny, but it’s close. So, $0.5 million in first quarter, nickel drag to the year, e-commerce was not embedded in our SPP model which called for 6% operating profit number, that was a retail only goal.

Okay. Thank you very much for clarifying that.

We’ll go next to Joe Feldman with Telsey Advisory Group.

Yes. Hi, guys. Good morning and congratulations on the quarter. Some of my questions were asked, so I'm going to ask a little more detailed one. TJ, I think you mentioned that severance was sort of an unexpected increase. And I was curious if you could give a little more color behind that, like what was that related to, and is that something we should think about going forward?

Yes, I’m sure Joe. We don’t plan severance coming into the year. I think that’s the quick answer. We had a couple of situations where changes were made in leadership, both here in the home office and in our stores. We're not talking about store team leader; we are talking about much higher level that would round up to some of those types of numbers. As David mentioned in his prepared comments, we welcome Rocky this past week. Additionally, we haven't spoken a lot to it, but as it relates to the rollout of the store revolution and some of the metrics that we are going to be holding our teams accountable go forward, we actually have as you know seven regions throughout the country sitting here today we have [technical difficulty] people in new positions or new regions that have mostly come from outside the business. So the assessment of talent that David and the team went through and the Board went through when he joined us, started here in the home office and now as we move into the store revolution is rolled out into the stores. So it's both home office and store, it was not planned. And that's the reason to call it out to help everybody understand that from a leverage standpoint and how we are operating the business, we still feel very good that we can leverage SG&A in that flat to slightly positive comp, and the calendarization of it we have done internally and I think it's just a little bit different than may be what other analysts and investors might have been expecting. But it's very consistent with our plan.

And Joe, it's David. I’d just add to that, I have been very consistent in talking about what makes us successful is our people. And the strategy is great, but if you don't have the right people to execute it, it doesn't matter. So we -- again in the quarter made some decisions that we needed to change the talent and improve the talent and that's what we do. And quite candidly sometimes you make a hire, you make a mistake and I'm the kind of leader that recognizes that and is fully transparent if we made a mistake. Let's take care of it, move forward and that's what we have done. It shouldn’t be -- I think this is probably one of the biggest quarters we will probably have for the rest of the year for sure. And again, I think that we got a solid team of seven out there and so that's behind us in here in the corporate office as well. But it’s truly about making sure that we have A players in the building who don’t tolerate anything beneath that.

Thanks. Good luck with this quarter guys.

Thank you.

We'll go next to Dan Wewer with Raymond James.

Thanks. David, the Company’s revenue has essentially been flat for the last three years and the key reason for that obviously is the lack of net unit growth in the business. Do you see an opportunity for Big Lots to grow its square footage without sacrificing things like sales per square foot or operating margin rate? And if so, when do you think that would develop? And then, the second part of my question is similar, the Edit to Amplify strategy has resulted in net inventory per store declining about $45,000. Do you see an opportunity to reinvest that savings in inventory into inventory growth and again without sacrificing GM ROI?

Okay. Well, Dan I'll try to answer both those and maybe have TJ weigh in a little bit too, but I’d tell you we do have a strategy that we have been very clear about over the three-year period of closing more stores than opening. As you know, the guys go through a renewal process on a -- really on a monthly basis and we make decisions on which stores we are going to close or renew and so on. But I think that as we continue to get the business stabilized, which we have done that we need to improve as I said earlier to one of the other guys, the velocity of sales per lineal foot in the box, the productivity needs to improve so that we can turn the inventory faster and drive more top line, and that is really the strategy of growth. I’d tell you that that doesn't mean that if there was an opportunity for us to acquire some stores that were available to us and made sense for the Company that we’d be all over that. So we're always open to that, but right now the strategy is to maintain the current fleet and in candidly continue to improve the performance in the box. And as far as Edit to Amplify and reinvesting in the inventory, quite honestly we do that. I mean our food inventories are up and we added the balance of the freezer coolers this spring season, so the good news is that business turns faster than all the other businesses in the box. So we will invest where the opportunity is. We have invested in the furniture business, so we will continue to do that. We have been much more aggressive in furniture, in funding and adding inventory than probably ever in the Company's history. As you know, we downsize some businesses and gave furniture more space and we will continue to do that over the next five years as we figure out how to manage that business more efficiently. And quite honestly, that's an area of heavy, heavy focus on how we are sort based on square footage whether it's 2,500, 3,500, or 4,000 and our team -- the furniture team has a separate KRA that's clearly just focused on how do we drive more sales per square foot, and that's where we see big growth coming from.

Yes, I think just to add on there Dan, I think on the store count question, from our perspective as the business continues to be more consistent, gross sales per square foot as the operating margin expands, our hope would be that the number of store closings actually comes down a little bit over time. And that net number starts to flatten out over the next two to three years. Again, that's not what’s embedded in our SPP, but clearly as we are working towards a more productive company and a more productive box, that could be one byproduct. I think what we all are aligned on internally including our Board of Directors is we do not want to open new stores for the sake of opening new stores. And our real estate team is very plugged in and connected throughout the country and candidly there are some markets we’d love to grow in that we just, we can’t afford it right now. We think we can someday, but we're not there. The second part of your question from an inventory standpoint to one initiatives that the teams are working on and David has been very actively involved, Edit to Amplify was Phase 1, now we're looking at the store a little bit differently from a perspective of how many choices and where do we want to make our significant inventory investment by choice or SKU count is certainly an opportunity for the business as well. Growing turnover -- growing inventory turnover is absolutely a goal of the business. And the last point I’ll mention in albeit small and it is early another initiative to not only grow sales, but also look at our inventory ownership is we’ve got two or three examples in the store where scan-based trading is now merchandising strategy, partnering with our vendors to grow their business and really allowing them to have a little more view or a little more insight into how their products are performing by store and letting them manage it for us is another initiative. Again, albeit small these are all things that we work on with a single focus goal of improving inventory turnover and generating more cash. We just don't talk about all of them, all of the time.

Okay, great. Thank you. End of Q&A

Thanks, everyone. Vicki, will you please close the call with replay instructions?

Ladies and gentlemen, a replay of this call will be available to you within the hour. The replay will end at 11:59 PM Eastern Time Friday, June 12, 2015. You can access the replay by dialing toll free U.S.A. and Canada 888-203-1112 and enter replay pass code 9903591 followed by the pound sign. Internationally, 719-457-0820 and entering replay pass code 9903591 followed by the pound sign. Ladies and gentlemen, this concludes today’s presentation. Thank you for your participation. You may now disconnect.