Ladies and gentlemen, welcome to the Big Lots Fourth Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to introduce today’s first speaker, Andy Regrut, Vice President of Investor Relations.

Good afternoon. Thank you for joining us for our fourth quarter conference call. With me here today in Columbus are Bruce Thorn, our President and CEO; Lisa Bachmann, Executive Vice President, Chief Merchandising and Operating Officer; and Jonathan Ramsden, Executive Vice President, Chief Financial and Administrative 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. Reconciliations of GAAP to non-GAAP adjusted earnings are available in today's press release. This afternoon, Bruce will start the call with a few opening comments, Lisa will discuss Q4 results from a merchandising perspective, Jonathan will review the financial highlights from the fourth quarter and the outlook for fiscal 2020, and Bruce will complete our prepared remarks before taking your questions. I will now turn the call over to Bruce.

Thank you, Andy, and good afternoon, everyone. Our fourth quarter was a hard-fought one with sales coming in below expectations as comps declined compared to our outlook of a slightly positive increase. After running well ahead of plan in November with Christmas trees, Holiday decor and lights performing well, sales slowed the week of Cyber Monday, as customers confronted with fewer shopping days between Thanksgiving and Christmas, turned to the convenience of online shopping more than ever, as we saw in our own burgeoning e-com business. Our usual brick and mortar rally the last 10 days leading into Christmas didn't materialize, even with strong price cuts and promotional support and caused us to be more promotional for the balance of the quarter. These incremental promotions weighed on gross margins and were exacerbated by adverse shrink results as we did our first tranche of annual physical inventories in January. Jonathan will speak to this in a moment. The gross margin rate pressure was significantly offset by continued strong expense management and favorability in the tax rate. The overall result was that EPA came in a penny short of our guidance range from the beginning of the quarter. While we are not happy with this outcome, it is worth noting that for the full year we delivered a positive comp and ended the year with significantly reduced debt levels and well controlled inventories. In addition we position the company for future growth by enhancing our digital capabilities with BOPUS, successfully launching the Broyhill brand, expanding the footprint of our fleet with new, high volume stores and investing in marketing to drive traffic and build brand awareness. Before we jump into our growth plans for 2020, I want to address two matters. First, as we continue to move forward with our operation Northstar strategic transformation, we are evolving our approach as we focus on investing in areas that will drive the highest return for our shareholders. Based on some recent softness in sales trends for our Store the Future program, we have made a strategic decision to slow our roll out. We will focus conversions on markets where we expect to receive the strongest returns, while we prioritize investment and other high return growth initiatives under operation Northstar. To be clear, our Store the Future Stores continue to outperform our legacy stores. However, we now have a larger base of converted stores and better visibility into performance after we have gone through the high volume fourth quarter and at the same time we have begun rolling out other high growth initiatives. We believe it is prudent to assess results of these various initiatives and refined the components of the conversions. We remain confident that the initiatives we are rolling out under operation Northstar fit well with Store the Future and we are focused on evolving and optimizing it as an ongoing growth vehicle. Second, the guidance we are providing for fiscal 2020 includes the estimated Q1 sales impact, the supply chain disruption we expect to be caused by the coronavirus. Beyond this impact, the first quarter is off to a slow start and is further impacted by upfront investments and growth initiatives that will primarily benefit us in the second quarter and beyond. We remain confident that we will see a sequential acceleration in sales through the year as these initiatives roll out. Our full year guidance does not incorporate any impact from the coronavirus beyond the first quarter, given we are not able to reasonably estimate longer term impact at this point. Turning to the progress being made under operation Northstar. As you know we first outlined this transformational roadmap one year ago and despite a challenging fourth quarter and a slow start to 2020 we continue to see positive results. We expect the progress on our strategic transformation will become increasingly evident as we move through the year. As you will recall, operation Northstar encompasses three discrete elements, driving top line growth through multiple tested and proven initiatives, funding the journey through significant expense reductions and ensuring we have the systems team and infrastructure in place to be a high performing organization. Starting with growth. We expect top line improvement during 2020 from the following initiatives. First, at the end of the first quarter and into Q2 we will complete the launch of the Broyhill brand across our entire chain. As a reminder, we acquired all Broyhill intellectual property, including exclusive rights in tech and design specifications in late 2018. Broyhill positions nicely into our strategy to grow all things home, with special emphasis on our better and best offerings and indoor and outdoor furniture and soft and hard home. Broyhill enhances our value proposition, elevates our quality perception and increases the surprise and delight factor in our stores. The early reads on Broyhill have been very encouraging. With season to date sales running ahead of our estimates and with some areas of particularly strong performance, including sofas and love seats which are 50% over plan. Furniture represents the majority of the sales activity thus far and we have major resets of product going to stores in a few weeks that will include top of bed sheets, soft window, patio and area rugs and bath and decor items. Second, by midyear we will have completed a chain wide rollout of our pantry optimization initiative which we formally referred to as traffic drivers. This initiative reconfigures our food and consumable assortments to strike the right balance between surprise and delight values from close outs and consistent brand name never outs. We expect to insert or perhaps reinsert Big Lots into her everyday shopping trip by offering her even more items on her list at our stores. As we detailed on our call in December, the product mix rebalancing involves moving footage from food staple items to food entertainment and consumables and will include replacing our current coolers with a smaller and cap cooler which will allow us to maintain Snap and EBT eligibility, while redeploying space to more productive categories. Based on our trials, we expect this initiative to drive around a 1% total store comp lift on an annualized basis. In late April, we will start our roll out of the lot in key line initiatives to all existing store the future locations. These programs will also be included in all new store openings in store the future conversions throughout the year, which will be approximately 80 stores, plus 100 or more additional unconverted stores. This will mean we will have these programs in around half of our locations heading into Q4. As a reminder, our test stores with the Lot have been experiencing a 1% to 2% total store comp lift, which represents a strong return on a modest investment in new fixed ring, signage and product. In addition we've seen equally encouraging results from our test of Qlines where we reconfigured and streamlined our checkout process, adding new impulse items to add to the basket as customers approach the register. Again, we expect this program to drive comps with only a modest investment in fixed ring, signings and product. Alongside these in-store programs, we expect continued strong growth in our e-com channel. We're moving toward a mindset of grow, grow, grow. In 2019, we more than doubled our digital business. It now is nearly 2% of sales and we've identified a roadmap to improve the overall experience and grow the business by leveraging existing infrastructure, focus that is buy online pickup in-store has been an excellent way for us to capitalize on strong growth in online traffic. And as we look forward we see additional growth opportunities from the digital omni experience, including expanding assortments and extended aisle offerings, adding more payment options and improving the overall experience. We believe e-com is a major opportunity for growth in the future. As I mentioned a moment ago, in the first quarter we will be making upfront investments in these growth initiatives, which will result in expense deleverage. However, we expect comps to accelerate throughout 2020 as the initiatives are rolled out and that we will begin to leverage expenses as that occurs. Turning to Fund the Journey, we have continued to make excellent progress on taking cost out of the business and more broadly creating a culture of frugality with a focus on cost management and operating efficiency. In 2020 this will include optimizing store labor with new tools to schedule associates during peak selling periods, reducing in-store markdowns in ways with new disciplines around food rotation and processing customer returns, as well as improving shrink with renewed asset protection initiatives, including new product tagging and fixturing. We're also lowering our indirect spend with detailed reviews of all line items of expense and partnering with key suppliers to reduce costs and improve margins. A year ago, we communicated $100 million cost reduction target over a three year period, as we communicated last December we expect to be above that figure by the end of 2020. As a reminder, these savings include both gross margin and OpEx components and portions are being invested back into the business. Finally in terms of enabling our organization to succeed, we have taken important strides in 2019 and we'll continue these in 2020. Executing a strategic transformation starts with the leadership of the company. We've added muscle to the organization, including new roles and talent, simplified our organizational structure and increased communication and transparency. We have a healthy balance of fresh perspectives and institutional knowledge and we're creating a performance-based culture to drive results and increase accountability. In light of some of the factors mentioned earlier in my comments, we have decided to postpone our forthcoming Investor Day. We believe it will be more beneficial to shareholders and investors to hold this event when we have greater visibility than at the present and when we will be able to provide more insight into the results of our newer growth initiatives. With that, I will hand over to Lisa and return to make some additional comments later.

Thank you and good afternoon everyone. As Bruce noted, sales finished Q4 below expectations with comps declining 0.9%. From a merchandise category perspective, furniture was the top performer comping up low double-digits, which is on top of a 9% increase last year with notable strength in mattresses, upholstery and case goods. Our mattress business continues to produce very strong results driven by Sealy, which has stepped up newness and our better and best offering. Upholstery was also strong benefiting from our introduction of Broyhill and from motion sets in our core offering, while case goods was driven by master bedroom and fireplaces. Our two financing options for in-store purchases remain very popular and continue to perform very well. Easy Leasing, the lease to purchase program offered through Progressive, grew in Q4 with penetration of furniture sales in the low 20% range once again this quarter. And the Big Lot's credit card had another very good quarter with significant growth not only in furniture transactions but across other categories in the store. Soft Home was up slightly in Q4 with good results in storage, home décor, fashion bedding and bath, driven by newness and assortments and in-store presentations which emphasize holiday collections across many categories and productivity improvements, partially offset by declines in other departments. Food and Consumables were each down to LY with food experiencing good results in giftables the bulls and DSD product, offset by planned declines from reduced space and dry grocery and sales weaknesses in cookies and beverages, primarily coffee. Similarly consumables had pockets of strength in businesses like housekeeping that were offset by declines in other departments, particularly areas like hair care that were up against strong closeouts from last year. Seasonal was planned down for the quarter, anticipating the shorter holiday season. As Bruce noted in our opening comments, after a strong start in November sales slowed the week of Cyber Monday and many Christmas related purchases were delayed until after the holiday when the product was on a markdown cadence. The early reads on our outdoor living related assortments have been encouraging, but it is very early in the lawn and garden season. And finally, hard home, electronics toys and accessories were down in Q4 once again reflecting the strategic decision to move space to other categories. Before handing the call over, I want to take a moment to thank our team for the efforts in support of Operation Northstar. Throughout 2019 the team spent countless hours developing, testing and rolling out initiatives to grow the business, fund the journey and improve core processes. I truly appreciate their dedication and continued passion to execute the strategies in the year to come. I’ll now turn the call over to Jonathan for insight on the numbers and our guidance for 2020.

Thanks, Lisa and I would like to echo your thanks to the entire team here at Big Lots. I'm going to start with some comments on Q4 and 2019 and then provide some cuts - some more color on our outlook for 2020. Net sales for the fourth quarter of fiscal 2019 were $1.607 billion compared to $1.599 billion we reported last year with the increase resulting from sales growth and high volume, new and relocated stores not included in the comp base and a slightly higher store count year over year, partially offset by the comparable sales decline of 0.9%. In terms of cadence for the quarter, the absolute comps are distorted by the calendar shift, the sales ran well ahead of plan in November before missing plan significantly in December and being roughly in line for January. The December miss was predominantly in the final 10 days leading up to Christmas where we did not see the store traffic we expected. Net income for the fourth quarter was $93.8 million or $2.39 per diluted share, which compares to our previously communicated guidance of $2.40 to $2.55 a share. And to last year's fourth quarter adjusted net income of $108 million or $2.68 per diluted share. The gross margin rate for Q4 was 39.5%, down 170 basis points from last year's fourth quarter rate, a result of higher markdowns from promotional selling and an increase in shrink expense. The higher shrink expense rose as we began our annual physical inventory cycle in January and was not anticipated when we gave our guidance in early December. It contributed approximately 30 basis points to the gross margin rate erosion and we believe stemmed from a transition in the store labor model we made during 2019 as part of our fund the journey efforts. With that transition now behind us, we are making the reversal of this trend a key priority for our stores and asset protection teams. The remainder of the gross margin rate erosion came from additional markdowns and promotions which as Bruce referenced were more intense than we anticipated at the beginning of the quarter. Total expense dollars for the quarter were $508 million, down from the $511 million we reported for the same period last year. The expense rate in Q4 was 31.6%, a 30 basis points improvement versus last year. This was an excellent result given some of the expense headwinds we were up against in the quarter, including costs associated with our California DC transition and the partial restoration of bonus accruals. Expense leverage resulted primarily from lower store payroll and corporate headquarters expense. Interest expense for the quarter was $33.2 million flat with last year and the income tax rate in Q4 was 23.2% compared to last year's rate of 24.9% resulting from favorable state settlements and hiring based credits, partially offset by higher non-deductible executive compensation. Moving on to the balance sheet, inventory ended the fourth quarter of fiscal 2019 with $921 million, a 5% decline compared to $970 million last year, when inventory levels were somewhat elevated as a result of tariff mitigation activities. Excluding and transit effects, inventory on hand was in line with expectations at the beginning of the quarter. During Q4 we opened four stores and closed 18, leaving us with 1400 stores and total selling square footage of $31.7 million. For the year we opened 54 stores with a majority continuing to be relocations into larger boxes within the same market, allowing us to support the bigger, bulkier assortments in the merchandise categories of Furniture and Seasonal. We also closed 51 locations during fiscal 2019 for a net increase of three stores our first year of net positive store growth since 2012. Capital expenditures were approximately $265 million and depreciation expense was $135 million or approximately $10 million higher than last year. Free cash flow defined as cash provided by operating activities, less capital expenditures was approximately $74 million for the year, excluding the net effect of the sale of our California DC and the reinvestment of a portion of the proceeds in our Columbus headquarters. We ended the year with $53 million of cash and cash equivalents and $279 million of long term debt compared to $46 million of cash and cash equivalents and $374 million of long term debt a year ago. Again, we were pleased with the debt reduction we were able to accomplish during the quarter, which exceeded our beginning of quarter expectations. For the full year we returned $98 million of cash to our shareholders in the form of quarterly dividend payments of $48 million and share repurchases of $50 million. As announced in a separate press release today on February 26, 2020 the board of directors approved and declared a quarterly cash dividend of $0.30 per common share. This dividend payment of approximately $12 million will be payable on April 3rd 2020 to shareholders of record as of the close of business on March 20 2020. Turning to guidance for 2020. We estimate full year diluted earnings per share to be in the range of $3.20 to $3.40 compared to adjusted diluted earnings per share of $3.67 in 2019. This guidance is based on comparable sales in the range of flat to a low single digit increase. This guidance takes into account our slow start to the year and bakes in a Q1 sales impact from the supply chain disruption we expect from the coronavirus. It does not include any impact from the coronavirus for subsequent quarters which as Bruce said we can't reasonably estimate at this point. We expect the gross margin rate to be flattish compared to last year and with Fund the Journey savings and favorable mix effects offset by some continued tariff impact and ongoing promotional pressure from. From an SG&A perspective at our projected sales levels, we expect some deleverage as investments in our growth initiatives, including upfront expenses and additional marketing support, plus higher depreciation and occupancy expense and the impact of wage pressures are only partially offset by from the journey savings Our weather as we did throughout 2019 we will continue to critically evaluate all expenses and expect to continue driving cost out of the business. As Bruce referenced earlier, we make good progress on cost reduction and now expect total savings from our Fund the Journey initiative to be significantly more than $100 million by the end of this year. For the year capital expenditures are expected to be approximately $160 million to $270 million. This represents a further reduction from the estimate of $200 million we gave on our December earnings call. The reduction stems largely from a lower number of store of the future conversions, which as Bruce mentioned, we have now reduced about 80 for the year compared to 205 remodels in 2019. These conversions will be focused on the stores and markets where we expect to get the strongest returns. As with operating expenses, we will continue to take a disciplined approach to capital expenditures and only approve projects that clearly and significantly exceed our cost of capital. Depreciation expense for fiscal 2020 is forecasted at approximate $150 million against a $135 million in 2019. We expect improvement in free cash flow driven by lower CapEx with EBITDA roughly flat. As part of our capital allocation objectives, we are targeting improvements in underlying inventory efficiency although for 2020 this will be offset by some investments we need to make ahead of the roll out of growth initiatives. Inventory efficiency will include the rollout of a new replacement system in 2020. We expect interest expense for the year to be down due to lower average debt levels and the tax rate to be up a little as we anniversary some discrete benefits from 2019. For the first quarter, we estimate net income to be in the range of $0.30 cents to $0,45 per diluted share compared to last year adjusted net income of $0.92 per diluted share. This guidance is based on comparable sales decrease in the low to mid single digit range. Our comp outlook for the quarter reflects a slow start Bruce mentioned earlier and the impact from supply chain disruption we expect from the coronavirus later in the quarter. First quarter gross margin rate is expected to be modestly down to last year due to increased promotions and tariff effects offset by benefits from some of our fund the journey initiatives and favorable mix effects. SG&A expense for the quarter will deleverage due to the fact as listed a moment ago with the impact exacerbated by negative Q1 comps. We expect to see sequential improvement and that we will leverage expenses in the back half of the year. Overall as Bruce referenced, well our first quarter will be challenging. We are confident that we will see significant sequential improvement in results as we go through the year. I’ll now turn the call back over to Bruce for his closing comments.

Thank you, Jonathan. As we have described we are facing some challenges as we enter 2020. However, our confidence that we are taking the right actions to create long term value for all stakeholders remain undiminished and we expect that to become more visible as we move through the year. In the meantime we see many opportunities ahead and we are committed to managing our business in a highly disciplined way and being judicious stewards of shareholder capital. Finally, I also want to take a moment to thank all of our 35,000 associates for their hard work and perseverance during a year of transition and 2019. I could not ask to lead a more dedicated and talented team. I'll now turn the call back over to Andy.

Thanks, Bruce. Operator we would now like to open the lines for questions.

Thank you. [Operator Instructions] Our first question comes from Paul Trussell with Deutsche Bank. Please state your question.

Good afternoon. Thanks for taking my call. So to start certainly understand some of the holiday challenges. So I actually wanted to kick off with a better understanding of the backdrop you're describing here in the first quarter. Maybe you can elaborate on why you think this quarter is off to a soft start and what exactly are you seeing in terms of disruptions in the supply chain.

I'll start off Paul and then hand things over to Jonathan, just to kick off our fourth quarter with a hard-fought quarter as we talked about, we started off with a good November, a top December as customers started to shift to purchases late right before Christmas. And that impacted our ability since our customer shops relatively late historically speaking. That said, we caught back up in January through heavy promotions and going into the Q1 those heavy promotions late in the fourth quarter may have had a pull forward for February into January. That said Q1 a couple other things that are hitting us in Q1 are first off, income tax refunds versus last year through yesterday, we're behind by about 30 plus percent. We have very elastic sales with those refunds. Also the supply chain impact of coronavirus is built into Q1 at this point and we're already working on mitigation programs for that for the balance of Q1. Jonathan?

Yeah. Paul, I'll just add a little bit on the coronavirus, yeah that impact is one we see in April you know, we saw sort of high teens percentage of our merchandise directly from China. And now obviously that's being impacted by the - you know the closure of factories there. And that effect is also now spilling over into Vietnam which is another an important news source in country for us and there's also some indirect impact from that. So we already know that some receipts are either sort of delayed you know potentially won't be coming and we've baked in about a 0.5 comet impact in Q1 for you know our current best estimate of the sales impact of delayed receipts into out into DCs because of what's happening. As we've said we haven't baked in any impact. Beyond Q1, we know there will be some in Q2 what we think is highly likely to be some potentially beyond that but we've estimated and incorporated into our guidance for Q1 that impact based on what we're aware of to date.

That's helpful. Thank you for that color. Then, you know, my follow up is regarding your remarks on reassessing the capital allocation strategy. Maybe just dig into that a little bit for us, especially as I'm a little bit surprised that you are slowing the rollout of the Store of the Future. Just help us understand.

Yeah Paula I'll add a little color to begin with on that. You know, first of all as we've said in the past year we're focused on being highly disciplined in capital allocation, we want to make sure that every capital dollar that we invest you know is getting the best possible risk adjusted return. So there's a couple things going on here. First of all as Bruce talked about we saw a little softness in the fourth quarter in our existing Store of the Future fleet. At the same time we have some very high return, other programs like the Lot you know, your pantry optimization, Qline, which we are we are prioritizing and we need to make sure we fully understand what's going on in the Store of the Future fleet currently. In the meantime we are continuing to - continue with the rollout, but just at a slower pace and focusing on markets where we believe we're going to get the best returns and then continuing to roll out some of these higher return, projects alongside it. So I would say it all comes back to being very disciplined in our capital allocation and again making sure we're getting a risk adjusted return to work very comfortably exceeds our cost of capital.

Paul, I'd like to add a little bit about Store of the Future on the back of Jonathan's comments and like I said a year ago Store the Future is a is a very good platform for our growth and that you know it enables us to standardize our fleet refurbish, keep up with the competition, showcases many of our great categories. And some of the things that we're doing to make it even better as we think about our store evolution, as all the green shoot initiatives that we've come up with in operation Northstar and that's what we'll be loading up in terms of the good capital allocation, as well as good value engineering to bring the cost of the Store the Future down so that as we roll it out going forward it's much more productive. It's a great experience for our customers and it's also a higher return on investment.

Thanks for the color. Best of luck.

Thank you, Paul.

Our next question comes from Joseph Feldman with Telsey Advisory Group. Please state your question.

Yeah. Hi. Good afternoon, guys. Thanks for taking the questions. Yeah I wanted to also follow up with a Store of the Future question, I guess what exactly will be the Store of the Future, like it seems like you guys have come up with a lot of other, as you said green shoot initiatives to add to it and now it feels like we're back to lots of different store versions with lots of different things going on, as opposed to here's our format, this is what we're going to roll with and you know - I would have thought that it would be working, I mean you're driving you know low double digit furniture growth, you're driving home growth, it's doing what you wanted initially. So I guess I am - can you help me understand like how soon do all stores have the new single Qline. How soon do all stores have the new furniture assortment? How soon do they have all these different things?

Thanks, Joe. This is Bruce. Like I said before, absolutely think Store the Future is a great vehicle for growth. I think that any initial plan especially when you're talking about store - store refurbishments and new setups they constantly evolve over time, as you get smarter and you read you know, how the customer is responding to it and where you're getting your best investment return. So having said that, we are pleased with Store the Future. The growth lifts in the first year continue to be strong. Our customers do enjoy traffic, still remains up versus balance of chain, basket is still strong in terms of the growth. The thing is as we look at it we know it can do better by having more disruption. For example by inserting the Lot in the front right corner, and we get a 1% to 2% lift and we add back to our customer insights, we surprise and delight her with new fresh products that are changing every six weeks or so. In addition to that Q, adding the Q So the Store the Future and the future, along with the balance of changing will continue to retrofit, that we'll have a Q line, this once again is easy convenience upfront for her to grab and go with product, another you know 1% to 2% lift. Pantry optimization is something she talked about and as she wants from, allowing her to shop name brands at competitive prices, but still get close outs in the aisles and big deals, all of those things will be in the retrofitted Store the Future going forward. And then other additional convenience upfront for quick, grab and go. So we're also looking at how we tell the story better in the store with navigation tools, more brand, brand signage. Ultimately once again you know it's about using the base Store the Future as a vehicle to continue to add on retrofit and grow this going forward.

And then if a follow up question on the shrink that you guys noted you know, you found it through the annual inventory which makes a lot of sense, you would find it then. But can you help me understand. You said that it stemmed from the transition to the new store operating model. I guess I didn't quite understand what that meant, if you could tell me? Thanks.

Joe, I'll try to elaborate a little bit. We changed our sort of your store your operating model in terms of the sort of management structure. There was some people who left the company as part of that and there was a you know there was some upheaval as we went through that know that transition and that appears to be the root cause of you know kind of maybe shrink not being quite as high of a priority, as it has been other points in time. The good news is that behind us we're back to a settled stable structure. And as we said, our stores are ops team and the asset protection teams are very focused on getting a shrink back down to where it's been over the last couple of years where we've been on an improving trend. So we look at this as being primarily a kind of one off, it was just associated with a lot of change occurring in our stores during 2019.

And Joe, I wanted to just answer your question around some of the timing that you had regarding the Store of the Future and the layouts. I think it's important to understand that we will be going back and retrofitting all of the Store the Futures in May, they will have the Lot, the Q line, in all stores we will have broil and pantry optimization. So we still think it's really important to maintain that consistency across our Store of the Future and all new stores and remodels going forward for 2020 will follow that same path.

That's great. That's good to hear. Thanks I'll cede the floor to others. Good luck with this quarter. Thanks.

Thank you.

Our next question comes from Karen Short with Barclays. Please state your question.

Hi, thanks. Just a couple of follow up some comments you've made. So the first question is just on the store labor model. You know, I know you talked about the new simpler management structure and you just answered the question in terms of what how that maybe slightly backfired. But guess I'm not totally clear on what you've reversed and how that will improve going forward? That will be my question.

Hi, Karen. This is Bruce. I'll give you a little bit of color on it, as we went through the year part of our store labor restructuring was to - in certain volumes stores is remove one of the assistant leaders and transform those hours there into more customer facing hours. So quite frankly we ended up with more customer facing hours in the store, but the actual disruption of that event in a good amount of our stores left us with less oversight over some of the shrink operations that that leadership would normally overview and quite frankly I think that to Jonathan's point it was a blip that we'll be correcting shortly.

Okay, that's helpful. And then in terms of I guess the coronavirus softness. I mean hopefully this is somewhat transitory. I guess, you typically don't have a short term focus on your strategy. So a little more color on why you would slow Store of the Future, partly based on that and I understand you're looking at returns and things like that, but you did call out coronavirus is one of the reasons why you're slowing…

I'll start off with that Karen, and hand it over to Jonathan, coronavirus is not the reason why we would slow down Store the Future. Coronavirus is just baked into our first quarter in terms of headwinds from a sourcing and supply chain standpoint, but not in Q2 through 4. Store the Future slowdown is quite frankly giving us time to better use our capital allocation in 2020 to once again add the operation Northstar green shoot initiatives like we talked about to retrofit those stores some of the balance of chain stores and very high returning types of investments and then getting to a new base that we continue to grow at what store evolution post 2020. So it's just a matter of timing and using good capital allocation to create a better shopping experience, better returns and improved comp sales.

And I just want to go back to the shrink point again. You know, so the changes we made to a point you referenced, the changes we made in the stores are ones we believe were absolutely the right things to do and they've contributed a very significant expense reduction. So while we have seen that shrink impact you know, it's relatively small compared to the savings that we've been able to gain from that change. And again we believe we can fix that going forward. So yeah we certainly don't think it undermines our decision to do that. And the other thing I would call out is that you sense that change, our Net Promoter Score which is a key measure of you know kind of store experience has actually been at all time high. So we don't think the changes we've made of adversely affected the consumer experience.

Okay. Last two quick ones for me. On retailers in general, most of the retailers that have reported already have kind of said their inventory as it relates to coronavirus is kind of already in the US and or on its way. So that shouldn't impact sales in 1Q. And yet you call that out. And then the second question and I'm sorry to ask this, but I've definitely gotten this question, you did send out the Investor Day invitation at the end of January. So I'm just I guess curious how you thought through doing that when obviously you're cancelling?

Yeah. So just on the first piece Karen you know, I mean we - you know we have specific delays in receipts coming out of China. We've been in extensive contact with our vendors there and as merchandise that is scheduled to get in and be out in stores by the end of the quarter that you know as based on what we know today is not going to be that. So we're working very hard to mitigate that. We hope what we've baked into our guidance turns out to be conservative you know, based on what we know today, we thought it was necessary to include some effect from that. Turning to Investor Day. You know, I think first of all the whole context around the sort of coronavirus is one has evolved very rapidly over the past few weeks and that certainly impacts our visibility and I think many other retailers and businesses and other industries have spoken to that. No uncertainty for the balance of the year. I think the other point though is you know in particular given the soft start we've seen in Q1 you know we do believe that we're going to have some positive news to report as we get towards the middle part of the year in terms of the incremental progress we're making from you know various growth initiatives. And we just felt that would be a better backdrop for when we've got actual results to report rather than projections of results to having a more helpful Investor Day for our threshold elders in the community as a whole.

All right. I just want to add a couple other things Karen on that just recall that coronavirus wanted dead had it caused the extension of Chinese New Year people not going back to work and still to this point people are in China are still you know not at full strength in these factories. So you know how much your cycle times on ordering are very, very long you definitely going to get impacted in Q1. And so that's what we've planned on and that's what we expect.

Okay. That's really helpful. Thank you.

Our next question comes from Anthony Chukumba with Loop Capital Markets. Please state your question.

Thanks for taking my question. Sorry I dialed in a few minutes late, so I'm so sorry I missed this. But how much do you think of the you know the fourth quarter miss you know the underperformance in the month of December. How much do you think that had to do with the competitive environment, particularly from a promotional perspective, in other words you know were your competitors sort of seeing the same trend. As far as you could tell where your competitors sort of seeing the same trends that you were doing that you were seeing and that's being more promotional? Thank you.

Hi, Anthony. This is Bruce. You know just to you know the whole tail of the quarters is an interesting one. You know after a good start in November, really December the sales declined for us. The valley if you will in the quarter was the was the final 10 days going into Christmas where things got very promotional, but also the extension of late shipping by pure plays like Amazon really gave a lot more alternatives to o our customers and many customers and quite frankly you know our customer traditionally has shopped late in the season and by extending the late shipping obviously she had many, many alternatives to go with. So it was really those last 10 days before Christmas that actually caused December to decline. And then as we got more promotional to clear our inventories in January we took our margin hit but we felt that that was the right thing to do we didn't want to keep on holding onto that inventory going into the new year.

Got it. That's helpful. And then a related question. You know, you mentioned the fact that you and you mentioned again the fact that people could shop online and that and that sort of hurt you. I mean, does that that change at all the way you think about your omni channel strategy. I've always gotten the impression you've been somewhat you know conservative with that I mean channel strategy and I just wonder if you know what happened makes you - it might make you rethink that?

Good question Anthony. No we're not conservative, in fact the last 18 months we've gone from less than 1% penetration of total sales to nearly 2% so doubling the business and we're profitable in the process of that. So it's just interesting to note that in Q4 alone because we added and accelerated our work on buy online pickup in store along with our overall e-commerce platform you know added about a point of comp in Q4 alone. And so that right there shows you know from the customer insights we did and now a little over a year ago we realized that our customers you know 25 plus percent of time will start their journey online and over 50% of them have an Amazon Prime card. So it's very important for us to compete in this area. And that's why I said in our earlier remarks it's grow, grow, grow opportunity for us. And I think over the next three years we're going to like the answer there. The good news over the next year 2020 we get to leverage our infrastructure, continue to grow it in a strong way, in a meaningful way. Our customers truly enjoy the convenience of it and quite frankly you know, as we now look at it we want to get a more personalized remove more friction and keep the customer coming back. So we're competing in e-commerce and we're really thinking hard about how we become a true good omni channel resource for her.

That's helpful. Thank you.

Thank you. Our next question comes from Brad Thomas with KeyBanc Capital Markets. Please state your question.

Hi. Thanks for taking my question. I'm hoping Jonathan maybe you give us a little more color on margins and how to think about those both in the first quarter and particularly the gross margin puts and takes through the balance of the year?

Sure, Brad would be happy to do that. Yeah we said I think in our prepared remarks that you know for the year as a whole we see gross margin rate being flattish. And then in the first quarter we see it being down a bit you with some promotional pressure riding on that. As a whole as you look at the sort of full year picture you sort of behind that getting back to flat. There are some fairly sort of significant moving parts in a couple of different directions. Obviously there are still some sort of year over year tariff impact which has abated somewhat from what we thought a couple of months ago, but it's still there. And you know we've sought to mitigate that in multiple ways, but it's still a bit of a headwind coming into 2020 and that may evolve as we go through the year. We were also assuming that there will be some need to be incrementally more promotional. You know, based on where we've been for the past couple of quarters so that that's baked in. The gains that we've made good progress through our fund the journey initiative in taking cost out of our COGS through some of the initiatives that we've been running there both in terms of relationships with our vendors and also in terms of in-store markdowns you know loss, shrink and so on where we know we expect to make continued good progress. So broadly those things we see kind of offsetting in 2020. For the full year in the first quarter we baked in some margin rate erosion due to the assumption that we'll be more promotional as well as some of those other effects we just went through.

Very helpful. Of course the company from a store standpoint had accelerated growth last year. What do you locked in on in terms of leases you've signed in stores that you will open this year and then I presume you'll probably be evaluating whether you want to keep opening up stores. Can you just talk about that thought process little bit?

Yeah I mean first of all in the near-term I mean if you know typically a fairly long lead time to sort of store openings. So yeah we would expect to be broadly on a similar pace currently to the last year for openings and then closings you're probably similar to where that's something we obviously have more time to manage through and one of things we are heavily focused on is looking at our low performing stores and how we can get them to be more productive and more profitable frankly so that we don't have to close them so we can keep the top line from those stores. Beyond that we know we're looking at a longer term real estate strategy that's something we've been spending a lot of time on again recently and what we think the opportunity could be that. And I think we've spoken in prior earnings calls that we think that is a potentially significant opportunity. You know we're not quite ready to quantify that but you know when we do reschedule our Investor Day I would expect us to be at a point where we were ready to talk more fully about that.

Great. Thank you Jonathan.

Thank you. [Operator Instructions] Our next question comes from Peter Keith with Piper Sandler. Please state your question.

Hi. Good afternoon, everyone. So I understand what's going on with you with Q1 and I understand that you have some initiatives rolling out to improve results. I guess if we look at quarters two through four implied in the full year comp getting back at the flat to low single it improves. Kind of a low single digit comp for the rest of the year after Q2. So just looking at the initiatives I guess mathematically with the pantry in the lot I could see a comp left but I want to get data on as to how many stores have these been tested in. Do you feel confident that that comp benefit is going to be consistent as you roll it out across a much broader base of stores.

Hi, Peter. This is Bruce I'll start off with the answer. So we've tested these concepts and up to 50 stores across our network and maybe pantry optimization and more than that at this point. And we've done it for a good amount of time going through different occasions when it comes to the lot. So we can understand the actual rolling in field for that and our ability to keep up with it and sourcing so we have not put them all together in one store but we but we've built in built in that factor into our Q2 through Q4 guidance.

Okay. And I want to dig into a little more on food and consumables because we feel like we've been talking about the food area for the last year around the pivot to more entertainment oriented food snacks and drinks and things like that. But the food comp just hasn't really gotten any better. Any thought to what the headwind is there in particular because I guess I wouldn't think of it as a holiday impacted category or a weather impacted category.

Okay. You know I'll start on that one and I think Bruce will also jump in. You know first of all you know the food and consumable categories are very important for us. And you know we look to food to your point. We have grown our assortment in more of the beverage Candy. Salty snack DFT portion but and which has been performing for us but we've also been moving space away from pantry and some of the basics. We still want to offer her that consistency of assortment when she comes to the store. But it's just a matter of really rationalizing that to the right level of investment. So I think with that with the pantry optimization I think that's really where both the food and consumable national brands come together so that we can we can offer her consistency while at the same time still surprising and delighting her with our closeouts which continues to be about 25% of our business. And we believe that that will continue to be a very important part of that assortment. So you will see as we roll out pantry optimization this summer you will see the assortment growing from a national presence within the consumable area. You'll see some space being allocated over and we also talked about the elimination of the freezer and cooler that we have moving that space to other more productive categories within food and consumables. And we will also have one in cap still available for the cooler product again to maintain our eligibility for SNAP and EBT.

Hey Peter this is Bruce. I'm going to add on a little bit of what Lisa just talked about and explained very well. I'm actually excited about where are our food and consumable business is going to go. I mean quite frankly you've heard me talk about this. We're not necessarily going to win on a canned appeasing and get somebody to come visit us first verse of their grocery store. But what we are good at is bringing excitement with exotic food fresh foods new finds as well as having a proposition where you can shop name brands which we're adding into the consumables and food sections at competitive pricing but also be surprised by a good closeout that has been somewhat muted in our in our in our back store at this point especially in the store of the future. What we're looking at is we go as we go into 2020 is just elevating that. You heard me talk a little bit earlier about signage in the store showing where the good deals are the big buys you know the engineered big buys the closeout buys and putting that right in the same Myles Woods with good clear messaging compared to the everyday items and name brand items at competitive prices. So you really think about it it's really our ability to get on the everyday Jennifer shopping trip when she does 50 plus of those a year. We want to disrupt that and make sure she understands that our offering that has competitive named brands priced as well as you know closeouts that could be 10 to 40 percent lower is a better proposition than maybe others that are dealing with manufacturing coupons and so forth. It's just telling that story upfront in the store a lot more. And then quite frankly when thinking about the store of the future layout and some of the improvements we want to do we realize that that there could be more food and consumable disruption upfront. That's why we have the Q in the space of the Q opens up for us can be better utilized with some quick grab and go convenience foods while not disturbing the low profile view of furniture all the way back to the to the pantry section of our store. So we're excited about where this all will lead and this is what you learn when you start using store of the future as a vehicle for growth and building on top of it.

Okay. Thank you very much for that feedback and good luck

Thank you. Our next question comes from Jason Haas with Bank of America. Please state your question.

Great. Thanks for taking my question. So I know there's been a few questions on the store labor that there are some reductions during the store. I understand that overall was a benefit to margin even excluding that shrink headwind but did that impact the comps at all. I mean is that is that one of the reasons why the comps were a little weaker and are you planning to add maybe add back in some labor hours into it into the stores. Thanks.

Thank you Jason. Good question. You know the once again you know the number of hours in a store actually in terms of customer facing improved as a result of this we actually took some overhead cost of the assistant team leaders where we had maybe too many per the volume the volume that the store did that was actually the true cause of it. So there was a better match better utilization of the labor hours in the store. There was also a better matching of labor to demand in terms of the store operations. So quite frankly we did not see a disruption to sales with that respect. It was just a momentary oversight of shrink measures that you would do in a normal store with theft et cetera that that spiked. And I'm very confident our team is getting their hands around that. So I feel good about where we are and I think the net promoter scores being an all time high shows that this was the right decision while also bringing tremendous expense savings to the bottom line.

Great, thanks. And then I wanted to ask if you could speak a little bit more towards the broiled rollout. I know you said that initial customer response have been strong. I know that there's been some higher price points introduced I'm curious to know if you've seen customers are subject to those higher points price point items.

Jason, we've been very pleased with the Broyhill roll out and we are ahead of plan on a life to date basis. And to your point you know we introduced some higher price points that had tremendous value proposition for our customers and we've seen great response and very I would say little to no negative impact. In fact you know we have several sectionals in our stores that are at that $1000 price point. And we again have been performing very well for us. Now those are the early indications we're also really excited about our patio furniture that we've introduced very similar situation slightly higher price points from where we were last year. But just incredible value proposition within the resin wicker and early indications have been strong. In April we will be rolling out our soft home component of Broyhill and we feel very confident with what we'll see.

Great thanks. And if I could add one more I might have missed this but could you say what the interest expense and the tax rate is implied in your guidance for 2020?

Jason we weren't specific. We did say interest expense will be down due to lower net debt levels. And then the tax rate will be up a bit as we had some one time at least what we would expect to be non-recurring benefits in 2019 right. So the tax rate will be up a little bit.

All right. Thank you.

You're welcome.

Okay. Thank you everyone. Operator would you please close the call with replay instructions.

Thank you sir. Ladies and gentlemen a replay of this call will be available to you by 7:30 p.m. Eastern Time, February 27. The replay will end at 11:59 pm eastern time on Thursday, March 12, 2020. You can access the replay by dialing toll free, 1-877-660-6853 and enter replay confirmation 13698571, followed by the pound sign or 201-612-7415 and enter replay confirmation 13698571, followed by the pound sign. Ladies and gentlemen, this concludes today's presentation. Thank you for your participation. You may now disconnect.+