Operator: Ladies and gentlemen, welcome to the Big Lots Fourth Quarter 2012 Conference Call. Today’s conference is being recorded. During this session, all lines will be muted until the question-and-answer portion of the call.
At this time, I would like to introduce today's first speaker, Director of Investor Relations, Andy Regrut. Please go ahead, sir.
Andrew D. Regrut - Director, IR: Thanks, David, and thank you everyone for joining us for our fourth quarter conference call. With me here today in Columbus are Steve Fishman, our Chairman, CEO and President; Chuck Haubiel, Executive Vice President and Chief Administrative Officer; and Tim Johnson, Senior Vice President, Chief Financial Officer.
Before we get started, I'd like to remind you that any forward-looking statements we make on today's call involve risks and uncertainties, and are subject to our Safe Harbor provisions as stated in our press release and our SEC filings and that actual results can differ materially from those described in our forward-looking statements.
Our consolidated financials include results from our U.S. operations and from our Canadian business that was acquired on July 18, 2011. Our statements also include immaterial amounts of discontinued operations activity. All commentary today is focused on adjusted non-GAAP results from continuing operations. A reconciliation of GAAP to non-GAAP adjusted earnings for fiscal 2012 is available in today's press release.
One other housekeeping item to mention, starting in the fourth quarter of 2012, the results of the toy business were moved from Play n' Wear to the Hardlines category as a result of realignment of management responsibilities. The Play n' Wear category now consist of electronics, jewelry, apparel, lingerie, hosiery and infants, while Hardlines includes toys, automotive, tools, paint, electric, plumbing, home maintenance, appliances, books and sporting goods. This change along with the separation of consumables into two separate categories food and consumables will be discussed by Steve later in the call and reflected in our Form-10K to be filed in early April.
This morning Steve will start the call with a few opening comments. Chuck will provide an update on real estate, TJ will comment on the final results for 2012 and our guidance for fiscal 2013, and Steve will complete our prepared remarks before taking your questions.
So with that, I’ll turn it over to Steve.
Steven S. Fishman - Chairman, President and CEO: Thanks, Andy and good morning everyone. As we entered the fourth quarter, we knew the customer buying trends in the U.S. would be difficult to predict given the national election and uncertain economy and a challenging job market. On our last call, we discussed early Q4 trends. You will recall the first two to three weeks of November were very tough with the national election and several external factors impacting retailer’s results. Then Thanksgiving and Black Friday came along, customers responded and our business trend started to show some improvement.
We were pleased to see the improving trends from Thanksgiving week continued and for the five-week December period, comps were slightly positive. However, as you’ve heard from other retailers, the finish to Q4 specifically the latter part of January was quite a challenge. The mandated payroll tax increase kicked in around 15 January and we noticed a change in consumer buying trends.
The more significant challenge for our business was the delay in income tax refund activity, which likely impacts the discretionary business like ours harder than say a traditional discounter. In particular, our furniture business and other big-ticket categories were the hardest hit. So while we posted a comp sales decline of 3.5% for Q4, we were trending to a better result up until the last two to three weeks of the quarter.
From a merchandising perspective in the U.S. seasonal was our best performing business in the quarter, comping up mid-single digits. We felt very good about our strategies going into the holiday season, particularly with Trim-a-Tree which was well-planned. Featured new and exciting trend right product and produced a high-single-digit comp on top of a low-double-digit comp from last year. We believe there continues to be growth opportunities in Trim-a-Tree as we look to 2013. Play n' Wear finished flattish for the quarter. We saw strength in jewelry and apparel, driven by a special closeout buying opportunities. Electronics was down 3% to 4%, up against a 20% comp increase last year.
Tablets and accessories did performed very well while DVDs and gaming continue to be down trending businesses. Food and consumables were down low single digits, which was largely expected and mirrored company trends. We made some changes in personnel in this key area, which I’ll touch on and in the last several weeks we've begun to notice a difference in content and performance.
Furniture comps were off mid singles against a double-digit comp increase last year. Here the impact of income tax refunds was significant. In fact, it moved the Q4 comp downward in this category by 2 to 3 points in just the last two to three weeks of the quarter. Mattresses were strong and case goods led by fireplaces were positive.
In fireplaces, we pushed the envelope on price lines and SKU count. We learned how far we can go and I'm pleased with this business. In other parts of merchandising, toys continued to be down trending business at retail, which would – did not surprise us and our home business remained below last year.
In home we were off-trend and did not provide a breadth of assortment or quality and the value the customer's demands. In this key category, we have also made personnel changes. So that's a view of the U.S.
Now turning to Canada, Q4 was our most successful quarter to-date as we continue to make progress towards our long-term goals and we recorded our best financial result since the acquisition of the business in July of 2011.
On the top line volume continued to build sequentially. Q4 sales were $48.6 million, 25% higher than Q3 and within the guidance range we provided in December. On the bottom line, we recorded our first operating profit, which was at the favorable end of our guidance from December.
From a merchandising perspective, the largest growth came in categories of seasonal, consumables, and home as customers continue to respond favorably to our focus on expanded assortments, better quality and extreme value.
From a seasonal perspective, we probably over-inventoried the stores to understand how high is high in Trim-a-Tree. We like the volume and learned how to plan 2013.
Interestingly, from a seasonal perspective, there seems to be a more favorable response to toys in Canada than in the United States.
In terms of consumables, it’s all about closeouts and deals; that’s what the customer responds to. There is probably a higher penetration in closeouts in Canada than in U.S. right now, which is likely a benefit with the large majority of the closeouts being sourced in Canada.
Home just became fully assorted in the fall and did experience growth as a result. However, similar to the U.S., we have opportunities to improve our content and quality. Additionally, we have done meaningful volume in furniture and believe there is an upside potential with tighter and more focused assortments.
Like our U.S. business, sales trends in Canada were softer in January and early February than the results during November and December. I believe we’ve made in-roads with the customer in Canada and my expectation in the merchandise content and quality will take a big step forward in 2013, just in time for us to introduce the Big Lots brand and begin to test some marketing.
Now, I'm going to turn it over to Chuck for an update on real estate.
Charles W. Haubiel II - EVP, Chief Administrative Officer: Thanks, Steve. During the fourth quarter, we opened 32 new stores in the U.S. and closed 19, leaving us with 1,495 stores and total selling square footage of 32.6 million.
For the full year of fiscal 2012, we opened 87 new stores and closed 42 locations, a net add of 45 stores in the U.S., representing a 3% increase over fiscal 2011.
From a new store perspective, we're planning for slower growth in 2013 for a couple of different reasons. We've consistently said that we would not just open new stores to hit a number. We acknowledged a pool of available sites for last couple of years benefited from certain retailers failing or significantly downsizing. With the recent announcement of additional industry consolidation, we may be at the beginning of a new cycle, but it takes time for opportunities to develop and locations to become available and when they are, we stand ready to pounce.
Also we acknowledged flattish sales productivity; the last couple of years makes the pro forma more difficult. Instead, we will divert some of our real estate capital to our other tests or initiatives that could provide a better return for our shareholders.
A major initiative in real estate for 2012 was a full market remodel test. A program designed to provide our customers with a like new in-store experience. We identified 16 stores in two markets, Miami, Florida, Modesto, Fresno area in Northern California. The renovations are complete and a marketing and media campaign reintroduced these markets to both our existing loyal customer base, as well as potential new Big Lots shoppers. On average, the CapEx for remodeled store was approximately $300,000 and addressed all physical aspects of the store including new fixtures, floors, ceilings, doors, lighting and signs.
Additionally, these stores presented a new merchandise layout, a traffic pattern for the customer, again designed to present the look and feel of the new store. The early results from the test have been encouraging, particularly in Florida where incremental sales lifts have been in the mid to high single-digit range. The response in California was more tempered but still encouraging. While this is certainly good news, we will continue to monitor results, understand how sustainable the lift is, and further dip our tow in the water and 2013 by expanding this testing initiative with three additional markets or 30 additional stores.
(Somewhere) in Miami and Modesto, test markets for 2013 are larger volume, important and maturing age and physical plant, and also represent stores, where we have term remaining and relocations are not widely available. We recognized the need to enhance the shopping experience for our customers in these locations.
Shifting now to Canada, there were no new stores opened or stores closed during the fourth quarter. We closed the total of three locations during the fiscal 2012 and ended the year with 79 LIQUIDATION WORLD or LW stores. As we look to 2013, we anticipate introducing the Big Lots brand to Canada by opening our first two or three new stores and rebranding a handful of others in Ontario. The new stores look and feel similar to our new U.S. store and will be close to 30,000 square feet to give us the opportunity to appropriately merchandise the store.
As many of you know, today a large number of the stores in Canada are smaller in size, which creates a challenge for us to present a full merchandising assortment. In the rebranded stores, the goal is similar to the U.S. Focus on stores, which are some of our higher volume and higher traffic locations, stores that are larger in size and the physical plant updates enabling us to launch the Big Lots brand with marketing excitement.
Now I'll turn it over to TJ.
Charles W. Haubiel II - EVP, Chief Administrative Officer: Thanks, Chuck. Good morning, everyone. I'm going to cover results for Q4 and then we'll move into a discussion on 2013. Speaking first to U.S. operations; sales for the fourth quarter of fiscal 2012 were $1.705 billion, an increase of 4.4% compared to the $1.633 billion we reported for the fourth quarter of last year.
Comparable store sales decreased 3.5% which was in line with our guidance. As was mentioned earlier after the November-December timeframe or the nine weeks of Christmas, comps were trending to a better outcome, something in the range of a decline in low 2s. But the latter part of January was much more volatile.
Q4 operating profit dollars were $197 million, up slightly from last year. The operating profit rate was 11.6%, down 40 basis points to last year. The decline in rate was driven by lower comps and a lower gross margin rate, partially offset by expense leverage.
Our gross margin rate was 39.6%, down 60 basis points to last year, with the decrease primarily the result of higher markdowns.
Total expense dollars were $479 million. The fourth quarter expense rate was 28.1%, a 20 basis point improvement to last year. Expense leverage came from advertising, bonus, stock comp expense and the impact of the 53rd week on fixed expenses, partially offset by higher occupancy and depreciation expense.
Interest expense of U.S. operations was $1.5 million compared to $0.8 million last year and our tax rate for the fourth quarter of fiscal 2012 was 38.6% compared to last year's 38.5%.
In total, our U.S. business reported income from continuing operations for the fourth quarter of fiscal 2012 of $120.1 million or $2.08 per diluted share, a record quarter and a 14% increase to last year's $1.83 per diluted share.
In terms of Canada, we recorded net income of $0.2 million, our first profitable quarter since we acquired the business back in July of 2011.
So from a consolidated point of view, we reported income from continuing operations of $120.3 million or $2.09 per diluted share. This compares to our December guidance of $1.91 to $2.10 per diluted share and to last year's income from continuing operations of $114.7 million or $1.75 per diluted share.
Moving on to the balance sheet; inventory on a consolidated basis ended the fourth quarter of fiscal 2012 at $918 million compared to $825 million last year. The increase was driven by growth and improvement of inventory content related to our Canadian operations, a 3% increase in U.S. store count and a 6% increase in per store inventory in our U.S. stores. The per store increase in inventory in our U.S. stores relates to one higher in-transit inventory to do fiscal calendar ship to building the breadth and depth of our consumables offering through certain deals that were available at quarter-end, and three softer January sales, particularly in furniture. We see this level of inventory growth is temporary in nature as inventory levels through the balance of the spring season are planned below last year.
For the full year fiscal 2012, total CapEx was $131 million compared to $131 million last year and depreciation expense was $106 million, an increase of $16 million to last year.
Cash flow for the consolidated company was $151 million for the year. The consolidated company ended the year with $61 million of cash and cash equivalents and $171 million of borrowings under our credit facility which is consistent with our expectations communicated back to you in December. This compared to $69 million of cash and cash equivalents and $66 million of borrowings under our credit facility last year.
Our use of cash and debt over the last 12 months was the result of our share repurchase activity and our investment in Big Lots Canada, partially offset by cash generated by our U.S. business over the last year. We ended the year with 57.3 million shares outstanding.
Now moving to guidance for fiscal 2013; total sales for the consolidated company are expected to increase in the range of 2% to 3% compared to last year. The increase is driven by consolidated comp store sales in the range of flat to plus 1% along with sales in new stores. Please note that starting in fiscal 2013, we will report comp store sales on a U.S., Canada and consolidated basis. A table summarizing our sales and comp guidance was included in today's press release. We estimate income from continuing operations for the consolidated company of fiscal 2013 to be in the range of $3.05 to $3.25 per diluted share, compared to adjusted income from continuing operations on a non-GAAP basis of $2.99 per diluted share in fiscal 2012.
We are operating under a 52-week retail calendar in fiscal 2013, as compared to 53 weeks last year. We estimate the benefit of the extra week in fiscal 2012 was approximately $0.05 per diluted share. We expect this level of financial performance will result in cash flow of approximately $180 million. The average diluted share count is forecasted to be approximately $58 million for fiscal 2013.
For our U.S. operations, we estimate income from continuing operations to be in the range of $3.15 to $3.30 per diluted share, compared to fiscal 2012 adjusted results of $3.21 per diluted share. This is based on a total sales increase of 2% to 3% and comp store sales in the range of flat to plus 1. The gross margin rate is expected to be slightly higher than the adjusted rate for 2012, driven by lower than forecasted markdowns.
Expenses as a percent of sales are expected to increase slightly in this model with the majority of the increase coming from higher bonus expense. You may recall our 2012 operating profit was below plan for most of the year, resulting in lower bonus and equity compensation-related expense. Excluding bonus, our expense leverage point is estimated to be a flat to slightly positive comps, as leverage in-store payroll, distribution and transportation and advertising are expected to be partially offset by higher occupancy and depreciation expense along with normal merit and inflationary increases.
Filling out the rest of the U.S. P&L for 2013, we expect net interest expense of approximately $3 million and the effective income tax rate is estimated at 39%. For the year, capital expenditures in the U.S. are expected to be approximately $115 million to $120 million.
Maintenance cap is expected to be about $40 million, which covers our stores, DCs and the general office. New store capital is estimated approximately $30 million to $35 million for the opening of 50 new stores and investments in certain other strategic initiatives will represent approximately $45 million to $50 million of CapEx in 2013. These dollars will be focused on continued emphasis on new systems including new warehouse management, HR, and real estate systems. The continuation of our full market remodel test program and other certain real estate initiatives.
Depreciation expense in the U.S. is forecasted at approximately $110 million to $115 million, against a $103 million in 2012. Higher depreciation expense is primarily due to the new store growth, IT systems, our continued commitment to maintenance capital and our real estate testing initiatives.
For our Canadian operations, we estimate a net loss in fiscal 2013 to be in the range of $3 million to $6 million or $0.05 to $0.10 per diluted share. This compares to a net loss of $13.5 million or $0.22 per diluted share for fiscal 2012. This is based on total sales of $180 million to $190 million, an increase of 16% to 23% and a comp store sales increase in the range of 15% to 22%. We expect sales dollars per quarter to begin to reflect a more normal retail seasonal pattern throughout the year.
CapEx for Canada is expected to be $7 million to $8 million, resulting primarily from maintenance capital and the new store openings and re-brandings that Chuck mentioned earlier. Depreciation expense for Canada is expected to be in the neighborhood of $3 million.
Moving to first quarter guidance, we estimate income from continuing operations for the consolidated company to be in the range of $0.53 to $0.65 per diluted share, compared to adjusted income from continuing operations of $0.68 per diluted share for the first quarter of fiscal 2012. This is based on a consolidated comp store sales decrease in the range of 1% to 3%.
Income from U.S. operations is expected to be in the range of $0.63 to $0.70 per diluted share, compared to last year's $0.77 per diluted share. Comp store sales are expected to be a decline in the range of 1% to 3% corresponding to a total U.S. sales increase in the range of 1% to 3%.
The gross margin rate for the first quarter of fiscal 2013 is expected to be below last year. Our expense rate is also anticipated to be above last year as a result of the negative low single-digit comp, higher occupancy and depreciation and higher incentive related cost.
In terms of our Canadian operations, we expect a net loss in the range of $3 million to $6 million or $0.05 to $0.10 per diluted share, compared to net loss of $6.1 million or $0.09 per diluted share last year. This is based on total sales number of $35 million to $39 million, a 9% to 20% increase over last year and a comp store sales increase in the range of 9% to 20%.
Now back to Steve for some closing remarks.
Steven S. Fishman - Chairman, President and CEO: We covered a lot of ground this morning, recapping the results from 2012 and providing our initial financial expectations for fiscal 2013. I want to wrap up today’s prepared remarks with my thoughts on the New Year, where we've made changes in what will drive the business and what's the status of certain testing initiatives. You've heard me say for seven plus years now, people make all the difference. In midyear 2012 we made a change returning John Martin to the role of Head Merchant, someone who knows our business and I trust his judgment and his instincts. He and I spent the better part of the fall season evaluating our merchant teams. This led to some pretty significant changes in merchant leadership over the last several weeks.
Let me start with consumables, over the years it has grown into a large and extensive business. We believe we can improve our focus on execution by separating this category into two distinct businesses, food and consumables; each represents approximately 15% of the total U.S. business. We've tapped into the bench strength of our existing merchant team for the divisional merchandise managers. In the case of food, the DMM has an extensive background in the category with the added benefit of experience in refrigerated food and cooler rollout programs.
In the balance of consumables, the DMM has been successful in consumables in the past. Has extensive experience in managing closeouts at Big Lots and has a strong relationship with our closeout vendor base.
The second change is in the home business, it's not a secret as it struggled for some time. We've appointed a new DMM there also. A merchant with a background in home, both at retail and on the vendor side who has been running our global sourcing efforts for many years. The final key merchant change happened as early as last week and involves Canada. I asked one of our more experienced U.S. merchants to take over the lead role of merchandising efforts at Big Lots, Canada. This person has been instrumental in our growth in the seasonal and furniture categories, two key differentiating opportunities in Canada. He also understands closeouts and the Big Lots way of merchandising.
So in summary, we've addressed leaderships in two underperforming U.S. businesses and in Canada, we've placed a successful merchant with specific Big Lots knowledge in a key leadership position to help Joe and his team continue to build this key element of our long-term growth strategy. I'm confident these changes will help elevate our merchandising efforts as we move through 2013.
Next, there are three key testing initiatives in particular, which we believe have shown some early potential for future sales opportunities. First is remodels; Chuck mentioned some of the results and metrics. We've proven we can lift business. Can it be sustained is the question. Before making a broader company decision and a more extensive investment of time and capital, we need to be more confident in our answer, so we'll continue to test in 2013. Between Chuck and I, we had personally been to both the Miami and Modesto markets and the change of in-store experience and how our brand represents is significant and something we are proud of.
Next is Coolers; installation is now complete in 75 stores and five markets across the country. Merchandising of the product should be completed by the end of March. In the first five or six stores that do have product, we've seen encouraging sales of refrigerated merchandise but remember that is not our sole objective. The goal is to increase the level of traffic to our stores by not only offering new product but also having the ability to accept EBT and SNAP benefits.
EBT and SNAP are available to a growing segment of the U.S. population base, a segment we cannot service today in our stores. With increased traffic, the goal is to encourage the customers shop the entire store and drive a broad basket of goods not solely refrigerated or frozen product. We anticipate we will be EBT and SNAP eligible during the latter part of Q2, so there's more patience in monitoring of results to come.
The third item is an update on our rewards loyalty program. We've done a very good job of building a membership base with our current program and now have over 15 million members. We frequently send them online ad circulars or announce unique in-store events of our merchandise arrivals.
In October, we began testing three new reward incentive offers designed to increase frequency. The tests are in approximately 190 stores and over 10% of the membership base. The early indicators have been encouraging as each of these tests has shown some level of improvement in sales and transactions. These results are still very early and did occur during the high-traffic holidays period. We will continue to test through the spring season, the fall being the earliest date of any potential change or rollout.
On our last call, I indicated to you my intentions to retire during 2013 as Chairman and CEO of Big Lots once my successor is named. Although the search committee has been diligently conducting a search, including both internal and external candidates, there is not an announcement today nor do we have any indications one as imminent. However, situations do change and in the event that this is my final conference call, I want to say that I'm incredibly proud of what has been accomplished over the last nearly eight years.
Our WIN Strategy has made meaningful improvements in merchandising, real estate, and operating expense. Our intense focus on quality, value, and relevance in merchandise assortments has been critical to our top line growth.
Our sales of $5.4 billion represents a $1 billion increase over 2005 when we began our WIN journey. We also improved the quality of our store fleet from a location and condition of store perspective, and we lowered our expense base and maintained the low comp leverage point over time, something nobody believed we could deliver. All combined, we took a business that was marginally profitable and posted six consecutive years of record earnings, growing EPS from $0.14 per share in 2005 to $2.99 per share in 2012.
We've also generated nearly $2.5 billion of cash from operating activities and reinvested in new store growth, in expansion into Canada, improvements in information technology, training and development for our associates and returned it to you, our shareholders.
Since 2005, $1.9 billion has been invested to repurchase 71 million shares or 62% of the share base at an average price less than $27, all of this has been accomplished during the most volatile uncertain economic periods in U.S. history. Yet despite these unpredictable times, we've maintained focus with a consistent goal of being nothing less than the best.
I'm confident that you will see this company get back on track in 2013. The changes we've made in merchandising leadership, both in the U.S. and in Canada, will serve to refocus the team, improve performance and generate profitable growth for years to come. I want to thank all of our associates, our Board of Directors and you for the support during my tenure.
With that, I'll turn the call back over to Andy.
Andrew D. Regrut - Director, IR: Thanks, Steve. David, we would now like to open the lines for questions at this time.
Operator: Nathan Rich, Citi.
Nathan Rich - Citi: Thanks, and congratulations on a strong quarter. Steve, you had mentioned the challenges that you guys have been seeing in the home business and it seems like we should be seeing some changes to that category as we move forward. I’d just be interested in getting your opinion of what needs to be done to improve trends in that category.
Steven S. Fishman - Chairman, President and CEO: I’ll kind of a break it down into three areas. The domestics business, so linens and domestics actually has been pretty decent and we have a really strong focus and a very a senior merchant who really understands that business. The housewares business or the tabletop business, in particular cutlery and those areas are also we placed a really senior merchant who has many, many years of experience in that business. Quality and value need to increase in that area. The last area is the decorative part of the business, which is home decor in particular, candles, accessories, those kinds of things. We’ve really kind of lagged in the way of our performance. I think that's a quality issue and I think that's a value issue. We have really some exciting programs in there. I think you're going to see us take some very bold steps in the balance of the first and second quarter to alleviate inventory that really needs to go away, in my call, for the third and fourth quarters, that the home business is going to be one of the leading categories in this business.
Nathan Rich - Citi: Then a question for TJ, if I could. You guided to cash flow of $180 million. Could you just help us think about how you’re prioritizing uses of cash for 2013?
Timothy A. Johnson - SVP - Finance: Certainly, Nathan. I think near-term we’re certainly focused on executing the strategies that are out in front of us and kind of stabilizing our business, returning to that comp store sales number in a positive way as we move through 2013. We think it's in our best interest and shareholders best interest to focus on execution and stabilizing the business first. We also think that given the fact we’re in a transition period right now, with leadership that it makes sense for us to pay down debt at this point and focus on operations and recognize that under new leadership, there may be some interest in having a say and how we deploy our cash going forward and the Board is all full supportive of that.
Operator: Joe Feldman, Telsey Advisory Group.
Joe Feldman - Telsey Advisory Group: Good morning and congratulations on the quarter. A question about the test that you're doing. You had mentioned that Florida seems to be doing a fair amount better than California, the store test and I'm just wondering, is there anything different about the two tests that you’re doing or why you think there could be a little bit of a variance in the response rate to either one?
Steven S. Fishman - Chairman, President and CEO: Honestly, first off, it’s moderately performing well. It's not significantly different than Miami. I think the execution and the preparation for the transition was the key and I think we learned a lot about that. We probably didn't speak to that in the scripts specifically, but the preparation of getting ready for the transition and executing that transition and then getting it accomplished was probably a little bit better prepared and executed in Miami than it was in Modesto. I think in retrospect that was one of the big takeaways that Chuck and I probably walked away with and I know the field organization felt the same way. So I think it was really preparation and execution more than it is just the fact that once in California or Miami. We may have a little stronger base; you know both of those markets though are about the same. Both Florida and California are both about the same size and number of locations and we’ve been there a long period of time and they know us pretty well. So, I will tell you the economics in Florida and I don’t know if you’ve heard this from other people, finally have started to return and are a lot better and I’m wondering if that’s a little bit of it also. Everybody experienced some real challenges and particularly, Florida and Miami has a lot of consumers that are dependent upon retirement and income and monthly income. The performance in the fourth quarter in Florida and the execution clearly, because we have a really good group of people down there and we’re real comfortable with how we’re performing there. No less than California, but I see that things are happening a little bit more vibrantly in Florida. So that maybe part of the issue too.
Operator: Laura Champine, Canaccord Genuity Securities.
Laura Champine - Canaccord Genuity Securities: Steve, my question is really about the management transition. If you could talk about whatever you are comfortable talking about in terms of the kinds of backgrounds you are looking at, where you are in the progress. How long you think it might take? Anything you are willing to give us, because obviously it’s so important for the Company at this point?
Charles W. Haubiel II - EVP, Chief Administrative Officer: It’s Chuck. I’ll jump in. Candidly, there is not a whole lot we’ve got to share right now. Fact of the matter is, the Board’s search committee with Korn/Ferry have been working on this since mid-October. I think it took us six or seven months or so to find Steve. So I think the timeline is probably something consistent, as Steve said earlier, we are working diligently towards finding his successor and you guys will know as soon as we do.
Operator: Meredith Adler, Barclays.
Meredith Adler - Barclays Capital: I guess, I would like to just ask a question about, as you divide up the consumables, what – will there be a change in the focus on how the two halves are merchandised. A different emphasis on replenishment or closeouts and I mean how do you think that ends up looking to the customer. Well, what kind of changes will they see?
Steven S. Fishman - Chairman, President and CEO: I don’t think – look first and foremost, Meredith, we've got some really good people who have been with the Company and really understand that business. I think, we really like the closeout business and every time our business really is infused with really good quality closeouts, that business trend gets better and better. Particularly, in the consumables end of the business, the merchant who is leading that process has been involved in that business and really understands the vendor base really, really well and in all actuality we've seen a lot of really good deals. I'm sure you're in our stores and you've seen some of the high-end branded merchandise that is in the store, particularly in chemicals right now, and in paper and what you see there is only going to continue to roll in because there is more coming at this particular point. I think on the food end of the business what we are really looking for is a leveling between the closeout part of the business, which helps an awful lot and understanding what's going to drive day-in and day-out customer bases, so there are never out programs that continue to be developed, fresh pines continues to do great, international foods continues to do great. I think you're going to continue to see growth in that. But I think we wanted an expert who really understood and who could really help us through the process of coolers and freezers and how that's hopefully going to impact the transactional activity that we have in our stores. So I think you're not going to see significant change other than the fact that now that we have two Vice President, Divisional Merchandise Managers, who can take the time and we infuse closeout specialists independently in that business at the same time, we just can spend more time working with our vendor base in making sure there's a better flow of closeouts and we actually have seen a better flow of that. I think you'll see it improving going forward into the second and third quarter and the balance of the year. So letting someone divide and conquer, I think, in this particular case was probably a really good decision plus the businesses are so big, they're so big and they need individual management.
Operator: Peter Keith, Piper Jaffray.
Jonathan Berg - Piper Jaffray: This is Jon Berg on for Peter. Just I guess first in terms of zone pricing, I was wondering if you could give us a little more detail on how you're testing it by region, category or both. Then if you do end up rolling it out across the chain, do you think it could be a bigger gross margin drivers or sales driver?
Steven S. Fishman - Chairman, President and CEO: Yeah, I don't think we spoke to zone pricing, Jon. Although we're testing it, it's way too early preliminarily for us to have a discussion about that.
Jonathan Berg - Piper Jaffray: I guess, just one other quick one then. Is there anything near term you guys are working on to adjust your advertising strategy in order to drive traffic or awareness in your stores?
Steven S. Fishman - Chairman, President and CEO: Yeah, quite a bit actually. Again, we didn't really refer to it in the script. We have hired an ad agency that we did make public in December, and we've got a complete new branding strategy that actually you will see break this weekend with our first piece in the new television and strategy that's all about the deal is what the focus will be, you're going to start seeing in mid-to-late March. So there's quite a bit going on there. We’ve also repositioned some of the print advertising and the distribution of the print advertising into the mid-to-latter part of the first quarter. For an example, I’m taking a good hard look at the second, third and fourth quarter at this particular time, too, but not much to talk about other than the changes that I know we’ve made. You're going to see it pretty extensively, and print you’re going to see it pretty extensively in media and probably by the 1st of April you're going to see some, what we consider to be, changes in signing and presentation and how we go about addressing the customer and the stores also at the same time. It's not just a concept. It's all about really addressing the consumer. So there is quite a bit of change coming in marketing.
Operator: Patrick McKeever, MKM Partners.
Patrick McKeever - MKM Partners: I don't know, I missed a little bit of the call, but just hoping to get some additional details on the frozen and refrigerated food tests. I don't know anything from the number of cooler doors to the variety of product that you're selling to where you are planning to be from a pricing standpoint versus some of your competitors? How you're going to advertise just given the fact that you're only doing the testing in five markets and can't do a national campaign? Then just lastly, on the coolers as you look to potentially rolling them out to the chain in 2014, what might be some of the specific hurdles that you're looking at either from the traffic standpoint or profitability standpoint?
Timothy A. Johnson - SVP - Finance: I think I'll try to address as many of them as we can. I think first off, Patrick on some of questions you're way ahead of us in terms of where we are going to be comfortable speaking to specifically. This is a test for us in 75 stores, so it would be way premature to talk about any kind of rollout in '14 or beyond. I think you've got to start at real high level. Our sole focus here is to try to increase foot traffic to the store, so that we can hopefully convert more customers and drive transactions and therefore comps, and really all we know so far is that we've got 75 stores with coolers installed. Typically it's nine or 10 doors of broad selection of refrigerated as well as some frozen product and in handful of stores we'll tell cold beer. We've seen enough to know in the first four or five or six stores that actually have product in them that the customers are finding it, they are responding to it, but again our focus isn't to sell lower margin frozen food, our focus is to drive traffic and transactions to the store and encourage customers to shop the entire store, and so how do you do that, that's where the EBT and SNAP eligibility become so important to the project and so important to understanding the results and that will not hit stores until the latter part of second quarter. So we're way early here. We wanted to update you on where we were. I believe you’ve actually been in one of the markets if I remember right, there is five of them across the country, and we're excited to learn about it, but again I think it's important to understand, there is a cost associated with this, solely selling lower margin product will not make it work. We need the customer to shop the entire store. We need to increase foot traffic. Additionally, there is two or three different locations within the store, they were trying to understand where does it best fit, where does the customer find at the most and how can we minimize the amount of product that gets displaced. So there still lot of learning, but today we've been pleased with what we've learned, and we're looking forward to the second quarter.
Steven S. Fishman - Chairman, President and CEO: I’ll add to that too, Patrick, as you asked a couple of questions even though it's not something that we can market on a national basis the 75 stores. We have done it in markets specifically so that if we decide we want to make that decision to do it in print. We clearly have no issue doing that, we have the capability of marketing by marketplace and by district. So we’ll be able to do that when and if we’re comfortable and wanting to do that, which I'm sure at some point probably into the third quarter we'll do that. The second piece is there really are no barriers to entry other than the fact that we need to figure out in the balance of the chain at some point, how many stores we are going to be capable of putting it in and how many were not, but from a capital standpoint, there is no barriers, we understood that before we got into the program, when we want to roll it forward, we can roll it forward whether we roll it forward in 2014 or in pieces over a couple of years, that's still to be discussed. But remember, we're just in its infancy. So we need to learn an awful lot before we do that.
Operator: Paul Trussell, Deutsche Bank.
Paul Trussell - Deutsche Bank: Steve, TJ, given what you saw from the consumable in the last few weeks of January and all the headwinds given the payroll tax increase of delayed, refund checks, the guidance for 1Q is very much understandable. But I'm just looking for a little bit more color on most recent trends, just given the expectation for sales to gradually increase over the balance of the year. Have you seen a bump in some of the more discretionary categories particularly higher ticket such as furniture on the last few weeks? Then, second, regarding first quarter guidance on gross margins, is that mostly due to mix or more aggressive pricing plans or markdowns? How should we think about first quarter gross margins…?
Steven S. Fishman - Chairman, President and CEO: I'll address both of those questions. I'll answer the second one first. The answer is yes to that exactly. Mix of the business and more aggressive markdowns just because we want to make sure that we're moving on home and a few of the other business is the cause for the margin pressure in the first quarter. We think things will get better as they go forward. I think the answer to the first question is a little longer and let me tell you how we were kind of looking at it when we sat down with the Board and everybody as far as the plan goes for the year. The third quarter of last year was really challenging. The fourth quarter improved and we saw trends improve up until those last about the 15th of January through about the first week of February. Although, I think the guidance for the first quarter is right where we believe we're comfortable with. The trends when checks came out, and by the way, you can track them, we track them on a daily basis. We're still right around 25 billion behind at this particular point. Where we saw jumps from one year to the other year, this year to the last year discretionary businesses actually did improve and I would tell you the last couple of weeks have clearly been better than the last two weeks of January and the first week of February and the discretionary business has monetized. We just had Friends & Family, many of you have followed us for a long period of time and now that we run three major Friends & Family Events, which are huge days for us over this past weekend and we were pleased with the results. Actually across the board there was not one single division that didn't perform well on Saturday and Sunday on two of the – well, Sunday was one of the biggest days, it would be – would have been the biggest day I believe of the quarter, but – so I think we see some light at the end of the tunnel, is probably the best way to put it.
Charles W. Haubiel II - EVP, Chief Administrative Officer: Paul, just to add to what Steve said, when he is referring to checks is, hopefully everybody understands, I think it's been pretty well written out there. The income tax refund cycle is certain off the last year. Whether you receive a check or whether you get a direct deposited, it's – in round numbers on any given day were 25 billion to 30 billion with a B, behind last year. We started to recognize that very early on at the end of January, beginning of February, we noticed it in big ticket businesses, particularly Furniture and even Lawn & Garden and Patio and some of those areas. When checks started to flow really in earnest in probably the second week of February, to no surprise our business started to improve, trends in furniture and other bigger ticket categories started to improve. So we're hopeful that that dislocation is behind us. We felt the impact of it in fourth quarter and early February and really what we based our first quarter guidance on, Paul, was trends that we've seen more recently in really weeks two, three and four of February and to start the month of March. The second part of your guidance question around comp trends improving in the balance of year, you're correct. It would be our expectation that again once we move forward here in the first quarter and we've got a level playing field on funds and payroll tax, we start to understand our business a little bit better. Clearly, (it's in) our estimation, weather has not been our friend so far this quarter. In areas of the country where weather is more normal or warmer, we get a different result in seasonal. So we would expect those trends to improve. That's one of our larger growth categories for the spring season. Again, we do a lot of volume in the balance first and into the second quarter in seasonal. To Steve's point earlier too, it's no surprise our consumable business was difficult last year and while there are good early signs, there's also product flowing and deals flowing and relationships being built or mended in certain areas and we expect deals to flow in consumables and recognize we're achieving some of these results with one of our categories that Steve mentioned. Home is still having a difficult time. We would expect that to improve gradually as the year goes on. So from a merchandising standpoint, whether there are specific initiatives or whether they're improving the execution compared to last year with some of the changes that were announced today. We feel comfortable that we'll return to positive comps as the year goes on.
Operator: Jeffrey Stein, Northcoast Research.
Jeffrey Stein - Northcoast Research: Question for Joe. I know earlier last year, guys you were hoping that Canada would be kind of in the breakeven-ish area for this year end. The loss you're projecting isn't significantly off of that, but I'm just kind of curious relative to where you were, let's say, six, nine months ago, what has changed in Canada? Are you looking perhaps at a slightly lower sales build or is the difference in the P&L coming out on the gross margin and expense side? Then I have a follow-up.
Timothy A. Johnson - SVP - Finance: Jeff, this is TJ. I guess a couple of factors to consider. When we first purchased the business, this goes back 18 months, we said our target was to breakeven in '13. Clearly, we've learned a lot in the last 18 months, and candidly, we closed a handful of more stores than we would have anticipated. So that's one factor to consider and we've been probably a little more cautious to move into rebranding and opening new stores then earlier considered. I think from a sales perspective to specifically answer your question, in the prepared remarks we talked about a little bit softer January and start to February in Canada mirroring the trends we saw here. So our sales expectation coming into '13 is probably slightly lower than we would have thought 90 days ago or a couple of quarters ago. I think the team there as we focused on managing inventory and improving margins and we've seen some improvement in that regard, but I also think it's important to understand we’re trying to build the business in Canada and there are certain investments or expenses that we’ve made (to) the collective decision or the planned decision to invest in now for the future, specifically in areas of rebranding, as Chuck mentioned. Also, in terms of supply chain and logistics, some things we need to do there to make sure that we can flow product to the stores in a way that the customer understands and wants it which might be different than here in the U.S. So there has been a lot of learnings on the merchandising side, some additional thoughts around investing in the expense base that might not have been originally considered. Also, we are going to test some marketing this year to understand what that could potentially mean. So the landscape has changed. It doesn't change our point of view at all that Canada is a long-term growth vehicle for this Company and even the guidance that we gave today, clearly, there's a significant amount of progress that's being forecasted and planned for 2013 compared to last year or few years ago. So we feel very good about that.
Operator: Matthew Boss, JPMorgan.
Matthew Boss - JPMorgan: Any changes in the competitive backdrop over the past three months that you’ve observed particularly as it relates to consumables pricing? Also, any updated thoughts on the closeout pipeline?
Steven S. Fishman - Chairman, President and CEO: No, as far as a competitive nature from our perspective, we are always competitive and that's just part of our mantra. As far as the closeout pipeline, it’s good and you'll see quite a bit in consumables, in particular as I alluded to the chemical end of the business; the paper end of the business, food is decent. We actually have for the first time in many, many years a sizable seasonal closeout that is just hitting stores. You probably wouldn't have seen it yet and it’ll probably be set up in all the stores in the next couple three weeks. So we feel good about the flow. The new closeout people are really active and they are out there and establishing and growing relationship. So it's a real focus for John, I know that, specifically with the merchants and I believe it will continue to get better as we go forward at the end of the first into the second.
Operator: Anthony Lebiedzinski, Sidoti & Company
Anthony Lebiedzinski - Sidoti & Company: Just wanted to follow up on a prior question. So as I heard Q1 gross margin will be below last year, but for the full year you expect that to be up. So I was wondering what gives you the confidence to think that you'll be able to actually improve the gross margin during Q2 to Q4.
Timothy A. Johnson - SVP - Finance: Two things. Anthony it's TJ. I think first off, we have plans for our seasonal business to be a leading category this year. That is a higher margin business, as you know. We have expectations that our home business will improve throughout the year and just not in the front half of the year, but throughout the year and that's our higher margin business and we have expectations that we will not spend the kind of markdowns that we spent, particularly in the third and fourth quarter last year, again this year. I think if you will recall, we had taken some pretty sizable positions, particularly in Home, but in other categories around your power positions in some, I’ll call it more towards the opening price point type items that in retrospect, we weren't as happy with the performance and quality, but clearly, we needed to liquidate that product. So that came in a cost in the back half for the year. From an execution standpoint based on some of the management changes that Steve talked about our expectation would be -- we would not repeat those kinds of mistakes. So it's a combination of two things, improvements and mix as we move through the year and lower markdowns.
Operator: Morris Ajzenman, Griffin Securities.
Morris Ajzenman - Griffin Securities: A follow-up on the gross margin questions previously placed to you guys. Over the last couple – probably last several years gross margins have probably drifted down about a 100 to about 120 basis points. My question is for the year you're probably – you're guiding up I guess models improving gross margins, you gave an explanation on the previous question here for that, but where should that ultimately be. I mean should we get back to the 40% – 41% gross margin level, or has there been a change in the business model and in the merchandising where the gross margins in the low-to-mid 39% range is more appropriate, if you can just expand on that please?
Timothy A. Johnson - SVP - Finance: Morris it's TJ. I think what we’re comfortable expanding on is the fact that we think it will improve this year to speak to '14, '15 or beyond or some target of 41%. I think you said is way premature at this point. I think it's important to understand as we think about our business, it's all about, it’s got to be all about gross margin dollars and really leveraging the cost structure in the business and not focusing our merchants on being required to deliver a certain percentage, because again, in our business it has to be all about great value and competitive pricing and we wouldn't want to compromise that. So, we're not in a position today to talk to a long range gross margin rate target or goal, but we do feel comfortable that this year there is enough opportunity to improve.
Operator: David Mann, Johnson Rice.
David Mann - Johnson Rice: A couple of questions. First of all, going back to the question about Canada, obviously, you are making some great progress there. Sales are improving nicely. I'm just curious can you explain why there is the need for the change in merchandising personnel there?
Steven S. Fishman - Chairman, President and CEO: David that was Joe and I sitting down and really talking in great detail. One of the things that we just have learned consistently over time is that when you know the Big Lots way and you understand the business and you've been with the Company for a while, there is great value in it. We had the unique opportunity just because of the years of development and training that we have with organization to take a merchant that both Joe really thinks a lot of than I do also myself personally has tremendous experience in this company. He’s been here longer than I've been with the Company. He was here when I came here and had done an unbelievable job with the furniture business and with the seasonal business and he has been involved in the Home business. His entire career really understands how to navigate throughout the building here in the United States. We thought that that would just be a huge advantage for the Canadian operation at the same time and Bob was willing to take on the challenge and asked him to move up there and take on that role, and I just think it’s going to be a huge benefit for us and I know Joe believes that, too.
Operator: Thank you. Ladies and gentlemen, a replay of this call will be available to you within the hour and will end at 11.59 pm on Wednesday, March 20, 2013. You can access the replay by dialing toll-free U.S.A and Canada 888-203-1112 and entering pass code 8792412. International dialers dial 719-457-0820 and entering pass code 8792412. Now, I’d like to turn the call back over to our speakers for any closing remarks. Ladies and gentlemen, this concludes today’s presentation. Thank you for your participation. You may now disconnect.