Ladies and gentlemen, welcome to the Big Lots Q1 2019 Earnings Conference Call. This call is being recorded. All lines will be muted during the question-and-answer portion of the call. [Operator Instructions] At this time, I would like to introduce today's first speaker, Andy Regrut, Vice President of Investor Relations.

Good morning. Thank you for joining us for our first 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 Tim Johnson, Executive Vice President, Chief Administrative Officer and 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. For the first quarter of fiscal 2019 this excludes after tax charges totaling $21.4 million or $0.53 per diluted share. These costs are associated with early implementation phases of our strategic business transformation review as well as certain legal settlement loss contingencies. Reconciliations of GAAP to non-GAAP adjusted earnings are available in today's press release. This morning, Bruce will start the call with few opening comments. Lisa will discuss our Q1 results from a merchandising perspective. T.J. will review the financial results for the quarter and the outlook for fiscal 2019, then Bruce will complete our prepared remarks before taking your questions. I'll now turn the call over to Bruce.

Thank you, Andy, and good morning, everyone. Q1 was a solid start to our new fiscal year with total sales growth of 2.2% comparable store sales increasing 1.5% each in line with our guidance. This level of sales growth with stable margins and solid expense management we reported adjusted EPS of $0.92, well above the high end of the guidance range we provided in March. First quarter sales results represents the fourth consecutive quarter of positive comps which is encouraging in light of the late income tax refunds, actual weather challenges in many of our markets. Lisa will break down our merchandise category performance in a moment, but at the high level the four businesses where Jennifer gives us the most permission to play are being Furniture, Soft Home, Seasonal and Consumables were the key drivers in the Q1 sales growth. We continue to be very pleased with the progression of certain longer term strategic elements of our business and their contribution to our near term results, including the strong performance in our Store of the Future format, accelerating sales in our new stores, the continued growth of our Rewards loyalty program, and our ecommerce business, which had its best quarter ever. Store of the Future, we continue to experience positive trends in sales and customer feedback along with higher engagement and lower turnover in our associates base and remodeled stores. Store of the Future is a winner for Jennifer, for our associates and the five big [indiscernible] winner for our shareholders as we [indiscernible] solid investment return [indiscernible] position our business for long term success. Sales lift for [indiscernible] stores continued to be in the high single digits with the majority of the increase coming from the margin rich categories of Furniture, Seasonal and Soft Home. As a reminder, Furniture is experiencing a larger sales increase. Our seasonal and Soft Home are next in line and have gross margin rates highly accretive to the company average. Sales growth in Store of the Future stores is driven by a bigger basket and increases in transaction, which is the result of higher customer traffic to our store. We continue to see positive results from most of our year two [ph] store markets which now includes Phoenix, Austin, Charleston, Myrtle Beach and Columbus as the sales lift in general continued to outperform the comps in our balance of the chain store. Another bright spot during Q1 was the performance of our new stores. I'm particularly excited about recent store opening where in many cases we have stores performing near or above the highest marks in our recent history. As an example, our Bay Shore [ph] store which is located on Long Island was opened in February of this year and has quickly become the highest volume store in our fleet during most of the week in Q1. The majority of our new store openings continue to be relocations where we've become more appropriately sized to feature our strongest categories of Furniture, Seasonal and Soft Home. We still expect to open 50 new or relocated stores this year, the highest number of new store openings in several years. With the success of the new Store of the Future format and the access to available space in the market, our confidence towards expanding our store fleet is growing. Next up, our Rewards loyalty program continued its record setting pace in Q1. We ended the quarter with 17.7 million active members, an all time high adding over 500,000 active members in the quarter and increasing membership by 16% year-over-year. We experienced record penetration for both sales and transactions during Q1 and the marketing team continues to leverage this base of customers with targeted one to one marketing directed at Jennifer where she consumes her media, whether it be email, social, or digital channels. Really good collaborative effort between our marketing team and our source teams continues to drive this key strategic growth opportunity. And finally, our ecom business, which had its best quarter to date since launching in April 2016 with record sales and our lowest operating loss in any quarter in the last three years. Steve, Erica and the entire cross functional team have done a very good job of leveraging our loyalty database, one on one marketing to drive higher volumes through a combination of increased site traffic in number of orders with a higher average basket. I'm excited about the trajectory of performance in the four key strategies; Store of the Future, New Stores, Rewards, and ecommerce along with our BOPIS pilot which has launched this week. These strategies at their core directly address Jennifer's feedback increasing our accessibility, surprise and delight and we are helping her live big and save [indiscernible]. I'll now hand the call over to Lisa for more details on Q1 merchandising results.

Thank you, and good morning everyone. As Bruce highlighted Q1 was a solid quarter from a sales perspective. The comp increased in line with our guidance of a low single digit [indiscernible]. From a merchandising category perspective, Furniture was the top performer, up mid-single digits with strength in case goods, upholstery and mattresses. We are pleased with this result given the late tax refund season and its impact early in the quarter. This business is highly correlated with the timing of income tax refunds as many Americans frequently make big ticket purchases when they receive their refunds. Congratulations to Martha and the entire team. Jennifer loves the new assortments resulting from reallocated store space and case goods, giving her more choices in dining and use and our newness in upholstery with an expanded offering of sectionals and motions is certainly resonating with her. And she continues to gravitate towards easy leasing our lease-to-purchase program offered through Progressive which comps up once again this quarter with double-digit growth. Looking forward, we're making some important changes in Furniture that we believe will drive sales, continue to elevate our newness factor, and enhance our quality perception with Jennifer. We are excited to announce we recently reached an agreement to transition the majority of our in-store mattress assortments to Sealy over the next two quarters. Our research indicates Sealy has a strong quality perception with our customers and the very good performance in our larger format stores currently offering both Sealy and Serta mattresses gives us additional confidence in the transition. This expanded partnership will increase our ability to offer more frequent updates of styles, features, and technology and elevate the excitement factor in this key category. We will be working closely with the Sealy team in the weeks and months to come to ensure inventory levels and the in-store training support is a smooth and seamless transition. And while the majority of our in-store mattress assortment will be Sealy, we anticipate we will continue to carry the tried and trusted Serta brand in all stores with an expanded offering in our larger format stores as well as online. Soft Home was also up mid single digits, another good quarter for Kevin and his team who has extended their streak for 21 consecutive quarters with mid-single digit or better comp growth in this high margin business. We continue to leverage the disciplines of QBFV or Quality, Brand, Fashion, and Value to improve our assortments and value propositions. Often highlighted on themed [indiscernible] or coordinated in line [indiscernible]. Coming soon, we will lean into the Soft Home business even further as we have made the strategic decision to downsize and exit greeting cards and redeploy the space for new fashion bedding in the quarter, a business that is trending in the industry and where Jennifer gives us permission to play. Next is Seasonal, which was up mid single digits as well, a good quarter for Michelle, Steve and the team and a solid start to a very important lawn and garden and summer season. As we've discussed in prior years, this business is high risk, high reward in the spring as weather unpredictability can impact sales trends on any given day, week or month. After a very slow start in February, due to late tax refunds and unseasonably weather conditions across most of the country, sales accelerated in March and through the months of April with the combined period of Marpril which normalizes the timing of Easter holiday increasing in the high single-digit. Our inventory levels are well positioned for the warmer months of Q2 with fashionable, trend right products for Jennifer. We also loved our expanded online seasonal assortment in Q1 which was a significant contributor to the record success of our ecommerce business which Bruce highlighted a moment ago. Consumables was up low single digits, the second consecutive orderly increase for Steven and his team. Once again this quarter the strength was driven by expanded cleaning aids in our housekeeping business and never [indiscernible]. Jennifer gives us permission to play in this traffic driving category and we see the world of Consumables growing in the future. Food was down in the quarter. As we have stated multiple times over the last several quarters, this business has been facing the most intense industry-wide competition. After solid business with our events and gift driven assortments for holiday during Q4, our business results softened or reverted back to more recent trends of low single-digit returns [ph]. We continue to see bright spots in pockets, namely candy, snacks and beverages. However, the overall softness of pantry and staple type goods [indiscernible] our category performance. Late in Q1 we executed the [indiscernible] transition of our food assortment for an additional sweet and salty snack where we get a higher permission to play from Jennifer and deemphasize portions of staple assortment. Hard Home and Electronics, Toys & Accessories were also down in Q1. Declines were broadly planned as we shifted to place more toward categories in which Jennifer gives us better permission to play. Before handing the call over to T.J., I want to thank our merchant and supply chain teams for their extra effort during these last few weeks as we evaluated, adjusted, and risk mitigated our business around the ever-changing topic of import tariffs. Our teams' understand just how important price and value is to Jennifer each and every day and they also understand the importance of a stable margin structure for our business. Our merchants have been proactive in many ways. The country of origin sourcing, evaluating overall unified, managing retail prices, and working with both import and domestic manufacturers better managed. Like most every other retailer you've already discuss this topic, unfortunately you will likely see the customer bear a portion of the cost in the form of higher prices. This situation is extremely fluid and we recognize we are nowhere near done, but to the extent possible we have tried to incorporate everything we know near-term in our Q2 forecast. I'll now turn the call over to T.J. for insight on the numbers in our guidance for 2019.

Thanks Lisa. Net sales for the first quarter of fiscal 2019 were $1.296 billion up 2.2% versus the $1.268 billion we reported last year. The increase in total sales resulted from our positive comp and the sales growth of new stores not included in the comp base, partially offset by a lower store count year-over-year. Comparable store sales for stores open at least 15 months, plus ecommerce sales increased 1.5% compared to our guidance of a low single digit increase. In terms of cadence throughout the quarter, we noted on our last call the month of February started strong, but sales trends slowed meaningfully mid month as a result of delayed income tax refunds. Our guidance for Q1 assumed February comps down low to mid single digit and that the lost sales in February would not be recovered during the balance of the year. And sales accelerated in March and April, but the results have [indiscernible] just in the Easter holiday. The combined period, which we like to call Marpril was up low single digits. Adjusted income for the first quarter was $37 million or $0.92 per diluted share compares to our guidance of $0.65 to $0.75 per diluted share, adjusted income of $40 million or $0.95 per diluted share for the same period last year. [Indiscernible] was directly attributable to lower expense levels. Sales and gross margin rates were largely in line with our expectations. Adjusted gross margin rate for Q1 was 40.5% up 10 basis points from last year and in line with guidance. As expected, the improvement was the result of better IMU, lower strength [indiscernible] and favorable merchandise mix, especially offset by a more promotional Q1 or higher markdown rate. Total adjusted expense dollars were $471 million or up 3.2% which was favorable to our guidance of expense growth in the mid single digits. [Indiscernible] spends were favorable to our operations, insurance, transportation and our corporate headquarters. The team has done a good job operating efficiently and [indiscernible] fund the growth initiatives are progressing nicely. Our adjusted expense rate in Q1 was 36.3% up slightly compared to last year's adjusted rate of 36.0% which the deleverage resulting from, first higher incentive bonus expense as adjusted results exceeded the plan coupled with Q1 LY which was the low point. Second, higher depreciation which is correlated with elevated investment in our Store of the Future remodel program and new stores. And the last deleverage item of note was an increase in rent expense associated with new store growth and the adoption of the new lease accounting standard. Interest expense for the quarter was $3.7 million compared to $1.6 million last year. Rates have increased and we paid a larger average debt balance during the quarter which I'll speak to in a moment. Adjusted income tax rate for the quarter was 28.1% compared to last year's rate of 27.0%. Moving on to the balance sheet, inventory ended the first quarter of fiscal 2019 at $927 million compared to $850 million last year with inventory levels per store increasing 10%. This level is elevated over our normal run rate or expected increase in sales for three key reasons. First, the general impact of tariffs on higher first cost of merchandise, second our intentional decision to move forward inventory commitments in key categories of Furniture and Soft Home to support earlier resets of fresh new products. And third and finally, the slower than anticipated sales of the seasonally sensitive products in Q1 largely due to weather. Our expectation is our inventory levels will slow down and return closer to flat or low single digit growth as we exit Q2 and enter the fall season. During Q1 we opened nine new stores and closed six stores leaving us with 1404 stores and total selling square footage of 31.4 million. As of the end of Q1 approximately 140 Store of the Future stores were eligible to be included in our comp store sales calculation. Capital expenditures for the first quarter of 2019 were $77 million compared to $31 million last year. The increase in CapEx aligns with our strategic investment in Store of the Future, our new California DC and a higher number of new store openings year-over-year. Depreciation expense was $32.8 million compared with $28.5 million last year. We ended the first quarter with $64 million of cash and cash equivalents and $470 million of borrowings under our credit facility. This compared to $46 million of cash and cash equivalents and $374 million of borrowings under our credit facility beginning in the quarter. Typically our debt levels would be lower in Q1 relative to year end in Q4. This year our debt moved higher largely due to timing and for four key reasons. First, a significant amount of CapEx focused on growth at the start of the year, namely Store of the Future and new stores. Second, we executed nearly all of our $50 million share repurchase authorization in Q1 based on our estimate of intrinsic value compared to where the market price is trading. Third, our elevated inventories and the timing of events in merchandise steps in our stores and finally an unusually low [indiscernible] inventory ratio at quarter end, based on the mix of inventory we were repeating as we've made no material changes to our merchandise [indiscernible]. In the first quarter of 2019 we invested $48 million to repurchase 1.3 million shares leaving us with approximately $2 million under our current share repurchase authorization at the end of Q1. A combination of this share repurchase activity and our quarterly dividend payment represents approximately $61 million returned to shareholders in the first quarter of fiscal 2019. As noted in a separate press release this morning, our Board of Directors declared a quarterly cash dividend in the second quarter of fiscal 2019 at $030 per common share. This dividend is payable on June 28, 2019 to shareholders of record as of the close of business on June 14. Also subsequent to the end of the first quarter we exhausted the authorization on our 2019 share repurchase program. In total for the program we invested $50 million to repurchase 1.3 million shares or approximately 3% of the company's shares outstanding. Now turning to forward guidance, for Q2 we expect adjusted income to be in the range of $0.35 to $0.45 per diluted share compared to last year's income of $0.59 per diluted share. Our guidance assumes a comparable store sales increase in the low single-digit on top of the 1.6% increase for the same period last year. Total sales growth is expected to increase in the low to mid single-digit or slightly above our comp reflecting recent trends in new stores both in volume per store and in a number of new store openings in Q2 this year is significantly higher than a year ago. Although the month of May got off to a slow start largely due to regional weather impact, the last two weeks have been up solidly in the low single digit range. Gross margin rate for the second quarter of fiscal 2019 is expected to be down slightly from last year and expenses as a percent of sales is expected to be higher than last year. The gross margin rate is slightly down as a function of higher markdown, primarily in seasonal products to improve our sell-through and exit Q2 appropriately as we begin the new fall season. This higher level of markdowns is expected to be partially offset by continued improvement in IMU both in rate and mix and lower overall [indiscernible]. From an expense perspective, we expect our total adjusted expenses to increase in the mid-single-digit range as a result of higher depreciation, higher occupancy associated with new stores and the impact of the new lease accounting standards and the beginning of our transition costs planned in Q2 and Q3 for our move from our current California distribution center to our new location in Apple Valley. This view is consistent with our prior guidance issued in March which calls for expenses to grow in the mid-single-digit in spring and moderate further in fall to growth in the low singles as our fund-the-growth expense reduction initiatives become a larger portion of our overall financial performance. For fiscal 2019 based on the strength of Q1 performance we have increased our guidance for adjusted income in the range of $3.70 to $3.85 per diluted share compared to our prior guidance of adjusted income of $3.55 to $3.75 per diluted share and for fiscal 2018 adjusted income of $4.04 per diluted share. This guidance is based on total sales growth and comparable store sales increase both in the low-single-digit. We believe this level of financial performance will result in an adjusted cash flow of approximately $100 million. One last note of clarification. All of our commentary has been on a non-GAAP basis or excluding the items of transformation costs, merchandise category exit and legal settlement contingencies which were detailed in our press release today. In our press release we also provide a GAAP guidance for EPS for Q2 and fiscal 2019. This level of non-GAAP activity on an after-tax basis is in the range of $35 million or $0.85 per share for fiscal year, reducing GAAP cash flow to approximately $65 million. I’ll now turn the call back over to Bruce.

Thanks T.J. On our last earnings call in March, I outlined the work our leadership team has been focused on to reposition the business for long-term success. Currently we've named the project Operation Northstar. We have made significant progress in a short period of time standing up a project management office or PMO and organizing numerous work streams in areas of growth, funding the journey and business enabler. The work streams across functional teams led by senior executives with specific scope, objective, and KPIs to ensure success both in the near terms and over the long run. For instance, One Growth work stream is focusing on strengthening Home with multiple initiatives, including the introduction of [indiscernible] during early 2020. Team Vision is icon [ph] a growth driver not only in Furniture but also in our Seasonal and Soft and Hard Home category. The team is leveraging customers' feedback and insights to properly position the brands across these categories with special emphasis on a better and best offer. Back to work stream is focused on life’s occasion, our solution for simplifying Jennifer’s life with bundled few rated assortments geared towards certain lifetime events big and small. We will be piloting certain tests of this concept in late Q2 and early Q3 starting with Dorm Essentials. New approach to be back to the campus space. Dorm Essentials will drive excitement, relevance and easier shopping with a curated assortment across multiple merchandise categories, as Jennifer prepares her kids for the upcoming school year. Our team is in the process of finalizing the assortment, selecting [indiscernible] and leading the marketing messaging for a successful pilot. Store of the Future is a good example of a growth work stream that builds upon the great works of the team has executed over the last eighteen months. As was mentioned earlier, we will remodel well over 200 stores this year and open approximately 50 in the new format, expanding our penetration to nearly one third of the store base by the end of the fiscal year. Work stream is focused on increasing the numbers of stores we convert going forward to over 300 stores on an annual basis. We believe we should be largely complete with the fleet or roughly 90% of the fleet by the end of 2021. This will be a big win for our company and for Jennifer as we increase the accessibility of our brand, enhance the surprise and delight factor in our stores and gross share in our Home category. Growing online and enhancing our digital experience is another example of the growth work streams that expands upon work that has been done by our team. We recently made important updates to our ecommerce platform improving the overall shopping with intuitive navigation, additional functionality, and faster check out. Earlier this week we launched a pilot of BOPIS, that is Buy Online Pickup In Store, couple of [indiscernible]. The BOPIS is another key element to increase convenience and accessibility for Jennifer and our goal is for a full team roll-out later this summer. Fund-the-growth also has multiple work streams looking at how to operate our business differently. We know growth and accelerating the top line is the key unlocked for our future. However we need to supplement the growth by lowering our overall cost structure and creating efficiency and leverage on our higher sales base. This included reviewing details for related payroll and associated activities and in first quarter it meant making reductions to tasks and hours which were not customer facing. It also meant realigning our field organization to streamline processes and increase efficiency and restructuring our corporate office to improve the overall reporting structure [indiscernible]. In addition, we are well down the path of identifying lower-cost opportunities, renegotiating relationships to create lower-cost in our indirect spend and we're beginning a bottoms-up approach to lower score level markdowns and merchandise damage [indiscernible]. And early innings, but the team has very good traction at this point in the year in front. Confident we will meet or exceed our goal to save $40 million in the year of fiscal 2019 and longer-term the goal of $100 million savings over the next [indiscernible]. In addition to growth and fund-the-growth we want to be sure to give proper focus in investment in certain business enabler. For example, enhancing our human resources strategy is focused on attracting the best talent in the industry, developing and retaining our associates and creating a play to win work environment. These are just a handful of examples of the nearly 20 work streams we have established and designed to support the strategic overview periods of fiscal 2021. Now, looking forward I'm excited by our opportunity for growth as our company looks to deliver great values for our customers, our associates and shareholders. I’ll now turn the call back over to Andy.

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

Thank you, sir. [Operator Instructions] We’ll first go to Brad Thomas with KeyBanc Capital Markets.

Hi good morning and congratulations on the start to the year here. I wanted to start off on the expense side and hoping T.J. you could give us a little bit more color around how expenses came in for 1Q relative to expectations and how you’re tracking on that $100 million cost target that you have over the next three years?

Sure, thanks for the question Brad. I think from our point of view, from a management point of view we were very pleased with the expense performance in the first quarter. Particularly items of note, Nick and the team from our store operations perspective, not just in store payroll, but in all other controllable expenses had a very good quarter. From an insurance point of view, both health claims as well as continued good performance in Workers Comp and General Liability was a plus for the quarter. Again, a lot of that activity starts at store level in terms of safety procedures, at distribution centers for the safety point of view so, and then once it gets here good performance in the office from the legal team and our Workers Comp team, so good collaborative effort there to really focus on costs. Additionally, from an office perspective here in Columbus, people continue to manage their budgets very, very well. From a fund-the-growth perspective, Brad, I would tell you the majority of the fund-the-growth is ahead of us. In late second quarter and on into the fall season we did have specific adjustments from a payroll perspective and from an operational perspective in the store as Bruce mentioned in his opening comments, and non-customer facing activity. So Jennifer should not have noticed any of the changes that we made, and the teams executed those well. So I think from our point of view Brad, those are some of the operational differences in the quarter. We did have some timing differences also in the quarter, particularly around some of our new store openings that are now more focused on second and third quarters. So there were some costs that we saved from that point of view, but generally just good operational performance across the business. I'd be remiss if I didn't mention our distribution centers and supply chain as well. So even though we've had some rising fuel costs and we've kind of battled through what we hope is the worst of the carrier rate challenges now, those teams continued to do a very good job controlling what they can control. So, just good performance broadly across the business.

That's helpful. And if I could ask a follow up around…

I'm sorry, you faded out there, the second part?

And Mr. Thomas, this is the operator, we're not able to hear you.

Can you hear me? Can hear me?

Yes, we can hear you now.

Can you hear me? Hello, operator can hear me?

Yes Mr. Thomas we can hear you.

All right. I'm not sure what happened there. I could hear you all clear the whole time. I apologize for that. Yes to follow up on the change you're making in the mattress category, I know you've had a longstanding partnership with Serta, [ph] I was curious what prompted the decision to change to Sealy, if you could talk about the timing of that, and what you're expecting to be different the Sealy partnership versus the Serta? Thank you.

Hi, Brad. I think, it's fair to say that we've had a great relationship both with Sealy and with Serta for many years. And, we're excited about furthering our partnership with Sealy, as we talk about the expansion to our stores. I think as we stated there is a strong brand recognition, and we have a lot of confidence in our - in this transition due to the performance that Sealy has in our larger format stores today. We really see Sealy bringing to the table a lot of innovation with their product, both from a styling and features and functions. And we believe that having strong brands in our store, both Sealy and Serta is going to be very positive for us.

Great. Thank you.

Thank you. We will next go to Jason Haas with Bank of America.

Hi good morning, and thanks for taking my question. Could you provide an update on how you're thinking about your merchandise categories? How should we think about the potential for further or other category shifts going forward?

Hi Jason, I'll start with that. First of all, yes we've talked about our own-able categories are clearly Furniture, Soft Home and Seasonal. And if, we've talked many times about Store of the Future, and the prominence of these categories as they've been front and center from a position standpoint and they've clearly been driving the nice comp performance that we're seeing out of the Store of the Future. So these categories from a home perspective will continue to lead. And as I've stated in my earlier remarks, we took some lower performing categories like greeting cards and we're shifting that back into Soft Home so that we can further expand our offering within children's bedding and décor. So you're going to see us really continuing to lean into Furniture, Home and Seasonal, but also it's important to understand that food and consumables still has an important place in our business both categories is where we deliver upon some great value with our closeouts but also we've had a lot of nice success when we've been introducing national brands. And again from a Consumables perspective, we really are looking to lean into these traffic driving categories to help drive traffic into the entire store. So again, you know small, I'll say tweaks from a merchandising perspective, but continuing to really focus on the key drivers of Furniture Home and Seasonal.

Thanks. And then as a follow up, could you quantify how much of a headwind you expect from the increase in tariffs from the 10% to 25% and then was that reflected in the change in guidance?

Again, from a tariff perspective, I think what I want to talk about too is just to give a understanding that we direct import about 25% of our product of which 20% is from China. And our position and our objective and our team understands, just really how important it is for us to continue to deliver on price and value and maintaining our value proposition in the marketplace. So the teams have been working very hard over the - for several months now and moving our sourcing, so some of it has moved to other countries. We're also working with our vendors, both import and domestic to better manage our costs and you know potentially we may be reducing some of the unit buys because ultimately like you've probably have heard from some other retailers, we will most likely have to pass a portion of that cost on to the customer in the form of higher prices. But to the best of our ability, we have absolutely reflected that in our Q2 forecast. But as I'm sure you can understand this is a very fluid process, but our teams have been working from a bottom up review by SKU and certainly from a top down standpoint and looking at the category strategies as it relates to pricing.

Understandable. Thank you.

Thank you. We’ll next go to Chris Prykull with Goldman Sachs. Please go ahead.

Good morning. Thanks for taking the questions. I just had a follow up on the tariff question with the news last night. I mean any color that you can give about what percentage of imports come from Mexico in your business?

Yes. Thanks, Chris. This is Bruce. We were discussing it this morning. It's always news breaking what's going on globally and we react to it, but we think the impact is low.

Got it. That's helpful. And then on the transition that you mentioned for the food category, have you tested that in certain stores? What has the customer reaction been? Were you seeing nice comp lifts in any of the tests that you did? Just trying to get a little bit more color, sort of what was the impetus for that transition and how you're thinking about it longer term.

Sure. Yes. Chris, we've got a real strong test and learn culture here and we did test the food category. We also had some other tests that we did within food including front-end traffic driving categories there as well and both proved to be very successful. Again, the strategy here, and what we're getting a lot of credit for from a food standpoint is really in the snacking, candy, beverage, entertaining types of foods, and less receptivity to the basic staples. So, what we tested and what we ultimately rolled at the end of April was moving some of that space out of the staples into these categories that have been performing for us and we're getting credit for. We also shifted some of that space into consumables, where we're seeing some strong response to a lot of our national brands that we've introduced as well as the close outs. And really as I had stated earlier, I want to lean into some of these traffic driving categories. And then the front end tests that we did was really to help us with UPTs, units per transaction. As you know with Store of the Future and moving food to the back of the store, we felt that we had an opportunity to bring some of that forward from an impulse standpoint. So, we also tested that and it proved it to be very successful and that is rolling to the stores as well.

I'd just like to add on to what Lisa said there in terms of our food strategy. I think it's important as we look forward, not necessary to look at food in its entirety, but look at what we're doing to make the space of the store more productive. So leaning in like Lisa said, into the snacks, the beverages, the sweet and salty, those are actually traffic drivers for us. And giving up the space in other parts like the canopies and so forth where we won't be that competitive to a more competitive and more productive spot or category in our store is really where we're going to. So the measurement is really on how we continue to make our box much more productive and appealing to Jennifer.

Great, that's helpful. And if I could sneak one last one in, and can you just give us an update on the buy online, pickup in store rollout, I think it was slated for this summer, how many stores, what are your expectations across sales and margins as you roll that out? Thank you.

Yes. Great question Chris. We're really proud of it. You know this week we launched our pilot as we said buy on online, pickup in store. So it's in a couple of districts right now. Our first order came in from Parma, Ohio. It was great to see it and it is a little bit larger than expected, so we're really smiling about that. But really this is something that was ahead of schedule from what we were planning internally, and we expect to get the full rollout to the stores - full rollout by the end of summer. What we've done here is exciting because it really offers our customers online access to double the skews they have today, that they could buy online and pickup in store. It does not mean a skew increase in stores, it just means that we are able to offer more. And it's really important from the perspective that many of our customers from our research we did earlier in the year, start their journey in fact about 20% of the time they start their journey online to make a purchase in-store and quite frankly over 50% have an Amazon Prime card. So it's important from an e-influence standpoint for us to be very competitive. And you just saw our e-commerce influence has resulted in the best quarter ever for e-commerce. So we're excited about what this is for us and the start of it.

Great, thanks so much and good luck the rest of the year.

Thank you.

Thank you. We'll next go to Anthony Chukumba with Loop Capital Partners. Please go ahead.

Good morning and thanks for taking my questions. I had a question, so you know - so Bruce you talked about the fact that, I guess the income tax refunds were delayed and that negatively impacted comps and that it certainly makes sense. Do you feel that you recovered all of that in March and April or do you think that there's maybe some of that that might shift into the second quarter at all?

Thanks Anthony. Good question I'll lead off and get some more color from the team here, but definitely late tax returns impacted the first quarter. We started very good and then with that delay you could see it. You know our customer is very sensitive to those tax returns and because of the delay coupled with weather that kicked in, poor weather that kicked in, we probably lost a trip in the first quarter. We got much better in March and Marpril as the team likes to talk about produce some good results and we finish the quarter like you see in a good - in good shape. That said I don't believe that the trip we lost is something that we've gained back, but we are starting May in a good position.

Yes, and I'll just jump in and add a little more color to reinforce that. I mean as Bruce said, you know Marpril was up high single, and as we talked about some of the inventory shifts, we brought in inventory early for Furniture, for some new sets beginning of May and we're extremely pleased with the great start that we're off to, as it relates to the new drive aisle presentation that we've brought in.

Yes. Just, I would chime in there. Anthony, I think from our point of view, it's difficult. I mean Marpril comps were up low single digit in the store. As Lisa just mentioned, Furniture being up high single digits, that had kind of sort of been our trend in that business coming out of fourth quarter and leading into early first quarter. So when we look at it that way it's difficult to say that that trip that was missed or that lateness of the tax refunds really came back to us in Marpril, but that is a really high level, because, I know I've seen some of the early notes out this morning, we we look at sales for first quarter as being very solid performance. I understand the comp at a 1.5% number up against a negative 3 might appear light on the surface, but understanding February started off down low to mid single digits, it really shows you the rebound that happened in March and April and particularly in some of our biggest categories. So we feel really good about that Marpril trend and what it could mean for the rest of the year. As Lisa mentioned, again some newness now flowing in Furniture and Soft Home with early sets leading those key categories. If you could help us out with some good weather the rest of the second quarter we'd appreciate that, because we know we're ready for business and lawn and garden and summer. So those big categories that have to perform, we feel very good about our position for second quarter. So, also I would just remind you, we mentioned this in the prepared comments, but the volume that we're seeing out of some of our new stores in the first quarter very, very encouraging. So total sales growth up higher than the comp growth, it is the first time that's happened in a quarter and in a number of, probably in a number of years to be honest with you. So, very good performance in new stores, very good performance in building our loyalty card base and e-com and BOPIS being new, as Bruce just mentioned. So we feel like we have a number of different levers coming out of Marpril going into the second quarter that validate some of the longer term strategies or longer term opportunities for growth, did well in the first quarter and have every expectation they should perform well in the balance of year.

Got it, that's helpful. And then just one quick follow up. So you talked a lot – or you talked about the very, very strong new store performances which is obviously very encouraging and then Store of the Future continues to do quite well. I guess, I was just wondering between the strong new store performance and the Store of the Future performance, does that in any way shape or form make you may be re-evaluate your long-term square footage growth targets, in other words could there be upside, could you open more stores, now that seems like you've really got the Store of the Future humming?

I actually think it validates our long term strategy which as we mentioned in the prepared comments is to remodel even more stores next year and have that numbers start in the 300s somewhere versus 215 this year. I think that validates our strategy to continue to relocate stores and become more appropriately sized and grow the net store count. I think the team is very energized to want to accelerate new store growth where it makes sense, but I think from our point of view you look at this year 215 remodels roughly 50 new stores or relocated stores. So 265 projects on a store base of 1400, you've got a pretty significant part of the store base that is changing this year and an even larger portion will be changing next year, so I think it validates our strategy.

That's helpful. Thank you.

Thank you. We'll next go to Peter Keith with Piper Jaffray. Please go ahead.

Hi, thanks. Good morning and thanks for taking my questions. I did want to dig a bit more on the tariffs. So from our observation it looks like some of the seasonal items that would be imported from China were priced up slightly higher this year. I want to understand if that was partly related to the 10% tariffs that we've seen so far and with the price increases what's been the consumer reaction on those seasonal items?

Hi Peter. I think to answer the question about prices in retail prices on our products, it's important to understand that within our patio furniture specifically, we've had a lot of great success with some of our higher price points, especially in the resin wicker. So part of our strategy putting tariffs aside for a moment was to continue to offer, and improve upon the quality of the product as well as expand our offering within our resin wicker and some of our dining. So from a natural progression and responding to our sales demand, we absolutely had provided larger sectional offerings which inherently raised our retails overall. On top of that, though yes, you are accurate, the tariff came into play. So there was a lot of things that we had to look at including our promotional posture. You know how deep would we go on some of the initial promotions that we offered looking at our initial retail pricing. So all of those things had to be taken into account, in order for us to properly manage the overall business.

Yes and peter, this Bruce. I'd like to add on to what Lisa said too. We're in the same boat with everyone else in that category seasonal and outdoor furniture and we're all dealing with it. And I think it's important to remember that while some may think it's an early indicator of what might come, you've got to remember that first quarter was again poor weather and disrupted by the late tax returns. So, we're all working through this. I think the team is doing a fabulous job. Our product looks wonderful and regardless, I think we're competitive in this assortment, very competitive.

Yes, I think to add onto that, what Bruce mentioned from a weather perspective and again, similar pricing across the country on like items by region. By region, Peter you can see 10 to 15 points of difference in comp performance, same prices, same retails across all of our business and 10 to 15 points of variance across regions based on weather. So that suggests to us that it's - it's likely bigger than tariffs and from a weather perspective, but it's really hard to separate the two.

Okay. Yes, that's certainly fair. And I just want to be clear too, because it seems like you've been very intentional to note that the tariffs are good into the Q2 forecast, but presumably that would not have any impact now from 25%. So, are we still kind of - I guess - wait and see on how the 25% might impact the back half or do you may have minimal Chinese imports as you think about maybe the Q4 seasonal merchandise?

I think we're trying to communicate as real time as we can Peter. That's what I think. And I think, again, two or three weeks ago we weren't necessarily wrestling with this issue. But I think, Lisa and the teams have done a very good job of being proactive in trying to understand specifically the merchandise that's pointed at us from China and providing for the most up-to-date information on tariffs. So I think from a seasonal perspective, we feel fairly confident in that regard. As it starts to get expanded to other categories and then you know phases that aren't naturally in effect yet, that's the piece that we're going to have to deal with that as it becomes reality. And if it starts to expand to other countries, we might not have as much exposure there, but we're going to have to face that too along with just overall pressure even within the domestic market. So Big Lots, along with every other retailer out there that sources anything outside of the United States, it's a very, very fluid situation. So I would think other retailers are struggling with the same thing we are when thinking about the fall season.

But what we've known so far, and what we've done is reflected in our forecast.

If I could just sneak in one quick one, so you've indicated 20% of imports from China. What percentage right now is, on this three that's being impacted by tariffs?

Peter, we directly source from Asia across the world 25%, 20% is coming from China. So our answer to that is up to 20% as this is a fluid situation and our teams work in other markets.

Okay. Thank you very much guys. Good luck.

Thank you.

Thank you. Our next question comes from Paul Trussell with Deutsche Bank.

Good morning. T.J., I believe you mentioned that gross margin was in line with your expectations in 1Q, maybe just discuss the puts and takes in a bit more detail like shrink and the promotional environment? And then given I believe expectations for a little bit of pressure in 2Q, are we still on track for kind of the original expectations and estimates for gross margin for the year?

I think based on everything we know right now today, we feel good about where we're forecasting margins for the year. Again, lot of moving parts and I'll bet that 90 days from now we'll be talking about different moving parts than we are today potentially from a tariff perspective. But until we understand those better it's difficult to adjust, primarily our back half of the year forecast. From our point of view, Paul, we expect that we're going to need to be more promotional on seasonal product to move through the inventory that we have in the second quarter. Again, from our point of view, weather has not been favorable yet. We're looking forward to that and all we're trying to do is provide the teams enough markdown level to move through the goods, so that we exit Q2 clean and get off to a good start in the third quarter. From a first quarter point of view, margins were up slightly and that included a more aggressive promotional posture late in March and in April, to try to drive business in the overall store and within lawn and garden and in seasonal. So, had we not had to do that, good margins have been a little bit better, sure. But from our point of view that was - it was clear that we needed to start moving on seasonal maybe a little earlier than we would have liked to otherwise because of the weather. Again, I think the teams are doing a great job of trying to be proactive, seeing around the corner and understand that Nick and his team need to move through this bigger bulkier product because we have new fresh inventory coming behind it.

Thank you for that color. And you mention pretty - had pretty favorable remarks around the rewards loyalty program. Maybe just expand upon those comments around the growth that you're seeing year-over-year, the efforts and steps you all are taking to do some of that one-on-one marketing? And then how should we think about the percent of sales or percent of sales growth that's coming from active members in the rewards program?

Thanks for the question Paul. Yes, we're excited about our loyalty program up to 17.6 million members at this point, which is a year-over-year, quarter-over-quarter growth of around 16%. So, it's - we've said this before, it's the best way and the most productive way for us to communicate to our customers and talk about all the value that we bring her. So very, very excited about it and that's also adding to a record e-com business. I think the, in terms of e-com in total getting to that part of the question, we're happy about the growth, it's been less than 1% of our sales. But having record sales in the quarter is optimistic for us. We think it's going to get augmented by BOPIS and all the offering there, but and that will be capturing the store comp. But e-commerce in total is something that is extremely important to us from an e-influence standpoint. We've grown year-over-year, last year. We were around $40 million in total sales with a loss in the neighborhood of $9 million this year, we're projecting to be $50 million, $55 million in sales with a lower loss between $6 million to $8 million and we like the trajectory we're on right now. It's important for us to be an omnichannel retailer, predominantly obviously brick and mortar, that's where she finds the value. That's how we grow profitably. BOPIS is going to add to that, but e-commerce is an important part and we're starting to see nice growth in a more profitable manner.

And what about the rewards program, as a percent of sales?

Yes. Paul we haven't broken that out separately, today. I would just encourage you to think of it. It's easily over half of the volume that we do in our stores and in growing. And the importance in really growing the program is not, I mean it's clearly from a marketing efficiency standpoint it's very important. It's also very important for our stores teams to understand that there's definitely separation in performance by those stores that are very focused on it or have a very high penetration of their sales and in rewards, tend to outperform the company by 2, 3, 4, points in any given quarter. So, the stores understand, very clearly, Nick and his team are very focused on this being a key lever for the future comp growth. So it touches on a number of different aspects of our business and all of them point to better financial performance.

Thanks for the color, best of luck.

Thank you. Our next question comes from Joseph Feldman with Telsey Advisory Group. Please go ahead.

Hey guy, sorry I was on mute there. I apologize if I missed this earlier on the call. I had trouble hearing some of it because of the static or something earlier, but with the charges that you guys are taking the strategic plan review I guess that's how you guys called it and then the legal expenses, what's driving that like, specifically on the strategic plan like I feel like you guys have been on this transformation path for a few years. So, what's new about that that caused more charges? And then also, again the legal expense contingency seemed pretty high and I'm curious what's going on there?

Yes. I'll start off on this. Thanks Joseph. And then we'll have a little more color. First off, this is not the same older strategic plan. This is a new strategic planning process we call Operation North Star. It's focused on accelerating top line growth. Also Funding the Journey which is taking cost out to fund growth and building enablement across our enterprise. Specifically the work that we've done to get to this point was doing a tremendous amount of research on our customers, the marketplace, the competition in general, the trends, so that we could understand where we can play, and win at a bigger rate than we've been doing in past years. That's important for us in this marketplace that we believe is growing to get our fair share of that. So this is different than what we've done in the past. It enhances many of the things that we have done in the past such as Store of the Future remodels which is performing well and new stores, but it's also a focus on other things like growing our Home more than we are doing now and entering into life's occasions, like Lisa spoke to earlier, which is curating products around Jennifer's life that makes sense. It's about increasing traffic drivers and growing surprise and delight in our stores, and as well as shouting value being known as the authority for price and value in the products that she enjoys. So this is different, and in order to do this properly we wanted to make sure that it was very logical steeped in data. I also want to make sure we benchmarked our costs for our infrastructure against best-in-class, and that we've done all those things. And I think we're getting traction. You're going to see and hear about some of the tests we're doing later this year in terms of life's occasions and traffic drivers as well as you've heard in this update how we're doing on our cost management, we're on track or exceeding it in the $40 million target and $100 million in the next three years. So we're excited about where we're going with this. We survey our people across the company and their reaction has been very positive. They understand where we're going with over 90% understanding. That's important because as everyone knows strategy is valuable, but execution is priceless and I think we're in execution mode at this point in a very nice way.

Great. Thanks for that. And then, just the remark on the legal contingencies, if you could mention that? And then my second question was around the gross margin T.J., maybe it seems like that - it's coming in maybe a little lighter than what you guys initially thought. I was just wondering how we should think about it for the second half of the year? Thanks.

Yes. Let me let me just expand on what Bruce said for a minute and try to hit the last point. So I guess, from my view Joe, what we're really trying to do here is stand up new muscle very quickly. So from a transformational standpoint having some help to do that, so that the rest of the team can focus on their day jobs so to speak and deliver a first quarter that was above guidance, we thought was very important. So we have help in the building helping us stand up the PMO that the Bruce mentioned, that's a portion of the cost. Additionally in the prepared remarks we talked about changes in org structure, so separation costs are going to be part of the transformation. Lisa mentioned her prepared comments, as we're trying to expand to more Soft Home presence in the store, that's clearly working. We made a decision to exit a category with American Greetings again a Category exit for us is something we've historically carved out as a non-GAAP item and separated for real good transparency. From a legal standpoint, setting aside money in this quarter around some of the potential claims in front of us primarily around some of the wage and hour disclosures that we've made in our SEC filings, again not new information, but we're further down the path and we know more. So, that's really how we got to this in the first quarter. The second part of your question around gross margins, as I mentioned to Paul, we were a little more aggressive in first quarter around promotions and trying to move through seasonal products. So again had we not done that, would our margins have been richer? They certainly would have. Did we look at the quarter and understand that we were trending very favorable from an expense standpoint and make some re-investments in margin? That was absolutely in the approach that we took. So trying to manage the business holistically and not just manage individual line items is really how we landed where we landed for the first quarter. From a margin standpoint, again second quarter will be a little lighter because we know we're heavier in seasonal and we have to move through it. Back half of the year, we feel very good about our plans. You know the one uncertainty is anything new or as the winds continue to shift on tariffs and their impact on not just our import product but some of our domestic manufacturers, that's what we have to work through. So that's what the teams are focused on.

I just want to get back also to your question on adjustments from a legal perspective. This is really being driven by California wage and hour cases and we've always taken a concerted effort and will continue to take a concerted effort towards settling or litigating as necessary. We believe our exposure is small relative to other retailers doing business in California and our stores in DC is very proactive in mitigating it. But this is where we are right now. We've got a bundle of cases we're looking at there that puts us in this situation.

Got it. Thanks for clarifying that and thank you guys very much. Good luck with this second quarter.

Thank you.

Thank you.

Thank you. [Operator Instructions] We'll next go to Karen Short with Barclays. Please go ahead.

Hi, thanks. I had a couple questions of questions, on the consumable side, can you just tell me if there is any shift in the percent of sales still eligible for snap before and after the changes that you're making in the – in this section? And then I also know discounts on consumables are obviously a big draw for employees. So any changes on the discount structure and skews eligible for employees? And then I had another separate followup.

Hi Karen, this is Bruce. I'll start off and I think I might have to ask you what the second part of your question is, but let me start off with the eligibility on SNAP and the food reset. We're still eligible. Our intention is always to be eligible for those customers coming in with food - for food items under the SNAP program reality. So, while we have a reduced assortment our 40 feet of coolers beverages may reduce we still qualify for that. And the second part of your question can you repeat that Karen?

Well. Well I just, I think discounts on consumables are a big draw for employees in general. So, are there any changes in the discount structure or skews eligible for employees from a discount perspective?

There are no changes to that program.

No. No. No changes, Karen. Actually we did enhance our program last year as part of reinvestment and tax reform to support our associate base broadly across the enterprise. So 20% discount on the store with a 30% discount on furniture and seasonal products, so very - a very appealing discount program. No changes to it. And we often believe that you know candidly our associates are some of our best customers. So we definitely want to do everything we can to continue to make that a valuable part of them being part of the team.

Okay great. And then the second question I had just on BOPIS or buy online pickup in store, if you said this, I missed this because I can't hear that well. But any update on the skew, total skews available and then how are you dealing with kind of marrying of inventory as it relates to what the consumer is seeing online versus what's in the store, like how real time is that inventory?

Yes. Good question Karen. The number skews available online for BOPIS will be double that we have in the past, so roughly around 12,000 skews will be available for buy online pickup in store. And the second part of the question?

I'll jump in on that one.

Yes, on the marrying inventory.

Yes. From an inventory perspective, yes we will have up-to-date inventory within all of our stores. So as Bruce indicated 12,000 skews that will be eligible for BOPIS. The other exciting thing too is we will now have a real prominent exposure to food and consumables that we didn't have before. So we're also excited about bringing that exposure to our customers.

And wait, there's more. Furniture is also offered on BOPIS and with vendor direct shipping.

And then just last question I had is, I know you've given the comp lift from Store of the Future. Is there any way to give some metrics on what the actual sales per square foot in the older format is, in some of these like the Seasonal, Furniture or Soft Home categories are so in older untouched stores versus the Store of the Future stores?

Karen, it would be difficult to provide that because we have a range of volume of stores that are included in Store of the Future, so I'm not sure that that would be representative of anything that would be easy for you to extrapolate or the inverse in the balance of chain for that reason. Again we're looking at markets that both our stores team and real estate team go through in detail together to pick those that are in most need of a change or may have events going on in the marketplace that makes it the most efficient to remodel. I would just suggest that we still believe we know the large majority up to 90% of the lift that we're seeing in Store of the Future comps or Store of the Future sales acceleration is coming from Furniture, Soft Home and Seasonal at the front of the store. So, we feel very confident that those - somewhat unique categories to us where we have a competitive advantage are driving the lift. A nice byproduct of this also Karen, is that the Store of the Future format that we're remodeling stores in is the same format we're using for new stores. So we actually believe that, that's a portion of our new store outperformance in the quarter and our new store confidence as we look forward. So there's a lot of good that comes from the Store of the Future learnings. The last item I would remind everybody on as well is the positive impact that it has not just on sales lifts but on vendors who now want to do more business with us because they see Store of the Future, landlords who are more interested in having us in their center because they've seen Store of the Future and our associates who have a higher level of engagement in Store of the Future, and we're starting to see some of our turnovers stats improved, so a lot of benefits to the program.

Great, thank you.

Thank you. And our next question…

Operator, do we have any more questions?

Yes sir. We have a question for Mitch Ingles with Raymond James.

Yes. Thanks for squeezing me in here. My question is, I believe you stated previously that the Store of the Future remodels were generating about a 9% to 11% sales lift. Today I believe you said they were generating a high-single digit gain. So what has changed there?

Yes. Well, I'll clarify Mitch. High-single digit is on average. I think our language in the past has been high-single to low-double digits in most major markets. Really nothing has changed. The results that we're seeing in markets still remain very strong. Even in first quarter when there are some differences regionally by weather, nothing has really changed in that regard. I'd also add that coming into the second quarter here we have a little over 90 stores completed which is a significant increase year-over-year. Nick and the teams are doing a great job of controlling what they can control. As we're remodeling stores we're seeing very little disruption while the stores under remodel and we look forward to those comp lifts here in second quarter and third quarter, where we'll have 215 stores give or take, that will come into the new program with the majority of those being in the comp base, so lots to look forward to in terms of Store of the Future.

Great, thank you, and congrats on a great quarter.

Yes, thanks.

Thank you.

Okay. Thank you everyone. Derrick, would you please close the call with replay instructions?

Absolutely. Ladies and gentlemen, a replay of this call will be available to you by 12:00 noon Eastern today May 31. The replay will end at 11.59 PM Eastern on Friday June 14, 2019. You can access the replay by dialing toll free USA and Canada 1-888-203-1112 and enter replay pass code 6062298 followed by the pound sign. International 1-719-457-0820 and enter replay pass code 6062298 followed by the pound sign. Ladies and gentlemen, this concludes today's presentation. We thank you for your participation. You may now disconnect.