Basis of Presentation and Summary of Significant Accounting Policies

9 Months Ended

Oct. 28, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

All references in this report to “we,” “us,” or “our” are to Big Lots, Inc. and its subsidiaries. We are a home discount retailer in the United States (“U.S.”). At October 28, 2023, we operated 1,428 stores in 48 states and an e-commerce platform. We make available, free of charge, through the “Investor Relations” section of our website (www.biglots.com) under the “SEC Filings” caption, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). The contents of our websites are not part of this report.

The accompanying consolidated financial statements and these notes have been prepared in accordance with the rules and regulations of the SEC for interim financial information. The consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly our financial condition, results of operations, and cash flows for all periods presented. The consolidated financial statements, however, do not include all information necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Interim results may not necessarily be indicative of results that may be expected for, or actually result during, any other interim period or for the year as a whole. We have historically experienced seasonal fluctuations, with a larger percentage of our net sales and operating profit realized in our fourth fiscal quarter. The accompanying consolidated financial statements and these notes should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (“2022 Form 10-K”).

Fiscal Periods

Our fiscal year ends on the Saturday nearest to January 31, which results in fiscal years consisting of 52 or 53 weeks. Unless otherwise stated, references to years in this report relate to fiscal years rather than calendar years. Fiscal year 2023 (“2023”) is comprised of the 53 weeks that began on January 29, 2023 and will end on February 3, 2024. Fiscal year 2022 (“2022”) was comprised of the 52 weeks that began on January 30, 2022 and ended on January 28, 2023. The fiscal quarters ended October 28, 2023 (“third quarter of 2023”) and October 29, 2022 (“third quarter of 2022”) were both comprised of 13 weeks. The year-to-date periods ended October 28, 2023 (“year-to-date 2023”) and October 29, 2022 (“year-to-date 2022”) were both comprised of 39 weeks.

Long-Lived Assets

Our long-lived assets primarily consist of property and equipment - net and operating lease right-of-use assets. If the net book value of a store’s long-lived assets is not recoverable by the expected undiscounted future cash flows of the store, we estimate the fair value of the store’s assets and recognize an impairment charge for the excess net book value of the store’s long-lived assets over its fair value (categorized as Level 3 under the fair value hierarchy). Fair value at the store level is typically based on projected discounted cash flows over the remaining lease term.

During the third quarter of 2023, the Company recorded aggregate asset impairment charges of $54.0 million related to 171 store locations, which were comprised of $47.3 million of operating lease right-of-use assets and $8.0 million of property and equipment - net, partially offset by gains on extinguishment of lease liabilities from lease cancellations of previously impaired stores of $1.3 million. The asset impairment charges included $26.3 million of aggregate asset impairment charges related to nine previously owned stores that were included in a sale and leaseback transaction completed in the third quarter of 2023 resulting from the addition of lease expense to the future cash flows of these stores. As a result of this additional lease expense, the cash flows of each of these stores were no longer sufficient to recover the store’s assets. The net proceeds received in the sale and leaseback transactions for these stores were excluded from the future cash flows used in the aforementioned impairment evaluation in accordance with GAAP. For more information on the sale and leaseback transactions see Note 10 - Gain on Sale of Real Estate. In the third quarter of 2022, the Company recorded aggregate asset impairment charges of $21.7 million related to 86 store locations, which were comprised of $16.3 million of operating lease right-of-use assets and $5.4 million of property and equipment - net.

In the year-to-date 2023, the Company recorded aggregate asset impairment charges of $136.9 million related to 332 store locations, which were comprised of $109.4 million of operating lease right-of-use assets and $30.3 million of property and equipment - net, partially offset by gains on extinguishment of lease liabilities from lease cancellations from previously impaired stores of $2.8 million. In the year-to-date 2022, the Company recorded aggregate asset impairment charges of $45.8

million related to 104 store locations, which were comprised of $33.8 million of operating lease right-of-use assets and $12.0 million of property and equipment - net. The impairment charges for 2022 and 2023 were recorded in selling and administrative expenses in our accompanying consolidated statements of operations and comprehensive income (loss).

During the third quarter of 2023, the Company completed sale and leaseback transactions for our Apple Valley, CA distribution center (“AVDC”) and 23 owned store locations with an aggregate net book value of $123.1 million. For more information related to the cash proceeds, expenses and gain on the sale and leaseback transactions, see Note 10 - Gain on Sale of Real Estate.

In the year-to-date 2023, separate from the aforementioned sale and leaseback transactions noted above, the Company completed the sale of two owned store locations that were classified as held for sale at the end of fiscal 2022 with an aggregate net book value of $2.2 million. The net cash proceeds on the sale of real estate were $9.3 million and resulted in a gain after related expenses of $7.1 million, which was recorded in gain on sale of real estate in the accompanying consolidated statements of operations and comprehensive income (loss).

Selling and Administrative Expenses

Selling and administrative expenses include store expenses (such as payroll and occupancy costs) and costs related to warehousing, distribution, outbound transportation to our stores, advertising, purchasing, insurance, non-income taxes, accepting credit/debit cards, impairment charges, and overhead. Our selling and administrative expense rates may not be comparable to those of other retailers that include warehousing, distribution, and outbound transportation costs to stores in cost of sales. Distribution and outbound transportation costs included in selling and administrative expenses were $73.7 million and $81.8 million for the third quarter of 2023 and the third quarter of 2022, respectively, and $277.7 million and $245.8 million for the year-to-date 2023 and the year-to-date 2022, respectively. Included in our distribution and outbound transportation costs for the third quarter of 2023 were $2.8 million of closing costs associated with the closure of our forward distribution centers (“FDCs”). In the year-to-date 2023, we recognized $13.4 million of FDC closing costs and $53.6 million of costs related to the exit from our Prior Synthetic Lease (as defined below in Note 3 - Synthetic Lease). As of the end of the third quarter of 2023, we have ceased all business operations at our four FDCs and subleased our McDonough, GA and Merrillville, IN FDC locations. We are actively marketing the remaining two FDC locations for sublease.

Advertising Expense

Advertising costs, which are expensed as incurred, consist primarily of television and print advertising, digital, social media, internet and e-mail marketing and advertising, payment card-linked marketing and in-store point-of-purchase signage and presentations. Advertising expenses are included in selling and administrative expenses. Advertising expenses were $17.9 million and $20.9 million for the third quarter of 2023 and the third quarter of 2022, respectively, and $62.2 million and $64.3 million for the year-to-date 2023 and the year-to-date 2022, respectively.

Supplemental Cash Flow Disclosures

The following table provides supplemental cash flow information for the year-to-date 2023 and the year-to-date 2022:


	Thirty-nine Weeks Ended
(In thousands)	October 28, 2023		October 29, 2022
Supplemental disclosure of cash flow information:
Cash paid for interest	$	32,339	$	14,213
Cash paid for income taxes, excluding impact of refunds	1,302		4,283
Gross proceeds from long-term debt	1,367,000		1,877,700
Gross payments of long-term debt	1,135,400		1,421,300


Cash paid for operating lease liabilities	377,819		276,919
Non-cash activity:
Assets acquired under finance lease	7,828		3,859
Accrued property and equipment	14,295		26,210
Deemed acquisition in “failed sale-leaseback transaction”	100,000		—
Operating lease assets obtained in exchange for operating lease liabilities	346,253		200,669
Valuation allowance on deferred tax assets	145,843		—

Reclassifications

We periodically assess, and make minor adjustments to, our product hierarchy, which can impact the roll-up of our merchandise categories. Our financial reporting process utilizes the most current product hierarchy in reporting net sales by merchandise category for all periods presented. Therefore, there may be minor reclassifications of net sales by merchandise category compared to previously reported amounts.

Recent Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Enhanced Disclosures about the Supplier Finance Programs. ASU 2022-04 requires buyers in supplier finance programs to disclose qualitative and quantitative information about their supplier finance programs. Interim and annual requirements include disclosure of outstanding amounts under the obligations as of the end of the reporting period, and annual requirements include a rollforward of those obligations for the annual reporting period, as well as a description of payment and other key terms of the programs. The Company adopted this ASU in fiscal year 2023, except for the disclosure of rollforward activity, which is effective on a prospective basis beginning in fiscal year 2024. See Note 9 - Supplier Finance Program for disclosure related to the Company’s supplier financing program obligations.

There are currently no additional new accounting pronouncements with a future effective date that are of significance, or potential significance, to us.