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Big Lots, Inc. (NYSE:BIG)
Q4 2017 Earnings Conference Call
March 9, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to the Big Lots Q4 2017 Earnings Conference Call. This call is being recorded. During this session, all lines will be muted until the question and answer portion of the call. If you need audio assistance, please press *0 and an operator will assist you. At this time, I would like to introduce our first speaker, Andy Regrut, Vice President of Investor Relations.

Andy Regrut -- Vice President of Investor Relations

Thanks, Anthony, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. With me here today in Columbus are 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 risk and uncertainties and are subject to our Safe Harbor provisions as stated in our press release and 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 fourth quarter of fiscal 2017, this excludes a provisional tax expense of $4.5 million or $0.11 per diluted share associated with the revaluation of deferred tax assets resulting from new corporate tax legislation. Reconciliations of GAAP to non-GAAP adjusted earnings are available in today's press release.

I'll now turn the call over to TJ.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Thanks, Andy, and good morning, everyone. Before we get into the review of our business, I would like to thank the investment community -- both sell-side and buy-side -- for your well wishes and concerns for David, and we have shared those with him. In terms of an update, as you are all well aware, we announced in early December that David would be taking a temporary medical leave. As of today, David remains on medical leave. The entire Big Lots family is looking forward to David's recovery and we intend to keep you informed of developments as appropriate.

As you may recall, since December, Lisa and I have carried out David's executive responsibilities, backed by the deeply talented Big Lots executive leadership team and senior leadership team. In addition, Jim Chambers, the Non-Executive Chair of our board, has provided valuable support to ensure that Big Lots continues to progress along the strategic path that has now led us to 17 consecutive quarters of meeting or exceeding our earnings guidance. I'll now turn the call over to Lisa for an overview of our results from a merchandising perspective.

Lisa Bachmann -- Executive Vice President, Chief Merchandising Officer, Chief Operating Officer

Thank you, TJ, and good morning, everyone. Q4 was a good quarter for the company as our earnings results exceeded our expectations and we made meaningful progress toward our long-term strategic initiatives. From a sales perspective, comp store sales declined ever so slightly in Q4, down 0.1% compared to our guidance of flat to 2%. From a merchandising perspective, Soft Home was the best-performing category, up mid-single digits, which is on top of the 6% increase last year, with strengthened flooring, bath, and decorative textiles. Congratulations to Martha, Kevin, and the BPARM team for another very good quarter. Our merchandising assortments are winning through the disciplines of QBFV, or quality, brand, fashion, and value, and the team is doing a great job coordinating design, styles, and color palettes across the store.

Seasonal was up low single digits. Michelle, Steve, and the entire team did a nice job improving taste levels in our assortments for Q4 with elevated quality and value statements in Christmas trim, and Jennifer continues to find this ownable category a destination when shopping. Furniture was also up low single digits on top of the 5% increase last year, with mattresses being the best performer in the quarter. Jennifer continues to respond to newness, as evidenced by the mattress performance, strong sell-through in our Roadshow upholstery offering, and the rustic farmhouse looks in RTA and case goods. Robert and the team continue to move swiftly to deliver newness and you will see this more as we move through the spring season.

Consumables was slightly positive for the quarter as our branded expansion of OTC product and the strength of Health and Beauty was partially offset by softness in other areas of the business resulting from the timing of closeouts. Stephen and the team have seen success with new expanded programs of branded merchandise as we continue to attempt to decrease our reliance on closeouts. Hard Home was flat for the second consecutive quarter, encouraging results from the team considering this business has been consistently losing space to ownable categories as part of our edit to amplify.

Food was down slightly for the quarter with growth in DSD and specialty foods for holiday, offset by the balance of the food departments. Jennifer enjoyed our holiday food and candy assortments that Debbie and the team created, and our stores executed very well from a presentation perspective. Finally, Electronics, Toys, and Accessories was down to last year, which was planned, as this business has also consistently reduced or donated space to our ownable and winnable categories. From a marketing perspective, we completed a successful relaunch of our rewards program in Q4. Big Rewards, as it is now called, went to all stores and online in early November and was very well-received by Jennifer, with enrollment and sales increasing throughout the quarter. Congratulations to the entire cross-functional KRA team involved in this refresh.

In addition, we recently welcomed the newest member of our executive leadership team. Steve Haffer joined the Big Lots family as our Chief Customer Officer. His background with extensive experience in e-commerce and customer engagement and acquisition will be instrumental as we strategize to grow our business. In addition, we're looking forward to his leadership as we reposition the Big Lots brand as a new kind of community retailer, which is targeted for an introduction this spring. "Serve Big, Save Lots" will be central to our communications on television, through digital channels, and in-store messaging as we look to serve alongside Jennifer.

Finally, our team continues to roll out the Store of the Future, which was unveiled at our Investor and Analyst Conference last September. The test markets of Columbus and Phoenix, representing approximately 30 stores, have experienced very good results. Furniture, which is front and center in the store, has been the best-performing category, as Jennifer is naturally drawn into the department as she enters the store. Seasonal and Home, which flank either side of Furniture, also have seen strong sales. We have approximately 180 stores from regions throughout the country slated for 2018, with Austin, Charleston, and Myrtle Beach already completed just a few days ago. I'll now turn the call over to TJ to review the financial operating highlights from the quarter and the outlook for fiscal 2018.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Thanks, Lisa. Net sales for the fourth quarter of fiscal 2017 were $1.642 billion versus the $1.579 billion we reported last year, with the increase resulting from an extra week of operations in the quarter partially offset by a lower store count year over year. Comparable store sales for stores open at least 15 months plus e-commerce sales decreased 0.1% compared to our guidance of flat to 2%. November was the strongest month in the quarter, which was in line with our expectations given the opportunities to comp sales based on last year's national election. December comps were down this year, which was planned, as Jennifer continues to shop later and later each year and the extra pre-Christmas day actually falls into January on our calendar. January ended flattish as the extra pre-Christmas shopping day and strong after-Christmas sales trends moderated through the month, and we know weather played a factor in many of our major markets.

Adjusted income for the fourth quarter was $109.3 million, or $2.57 per diluted share, which is above our previously communicated EPS guidance of $2.35 to $2.40 and represents a 14% increase over last year's adjusted income of $102 million, or $2.26 per diluted share. We estimate that the impact from new corporate tax legislation was approximately $0.11 per diluted share. So, on an apples-to-apples basis, Q4 EPS was $2.46 cents, or 9% higher than last year.

The gross margin rate for Q4 was 41.5%, a 10-basis-point improvement over last year's fourth-quarter rate, better than our guidance of a slight decline as a result of favorable shrink results. Total adjusted expense dollars were $514 million, and the adjusted expense rate of 31.3% was 30 basis points higher than last year's adjusted rate, resulting from certain fixed costs delevering on a flat comp and reflecting some tightness in our outbound transportation markets. Interest expense for the quarter was $2 million compared to $1.3 million last year.

Moving on to the balance sheet, inventory ended fiscal 2017 at $873 million compared to $859 million last year. Inventory levels per store were up 3% to LY, partially offset by a lower overall store count year over year. Inventories ended the year on our forecast and appropriately positioned by category. The 3% increase per store reflects some timing due to the 53rd week, as we are building inventory for Furniture in tax time, and also for Lawn and Garden in early February, which is reflected in our year-end balances.

During Q4, we opened five stores and closed 15, leaving us with 1,416 and total selling square footage of 31.4 million. For the year, we opened 24 new stores. A large majority of our new store openings continue to be relocations within the same market, allowing us to be more appropriately sized to support our ownable categories of Furniture and Seasonal. We also closed 40 locations during 2017 for a net reduction of 16 stores or approximately 1%. This result compares favorably to our initial annual guidance, which called for a net reduction of 20 stores.

Capital expenditures in fiscal 2017 were approximately $143 million, which is in line with our forecasts and above the $90 million we invested last year. The increase in CapEx was planned and elides to our communicated strategic investments in Store of the Future, our new California DC, our new corporate headquarters, and a higher number of new store openings year over year. Depreciation expense for the quarter was $29.6 million, or essentially flat to last year.

Cash flow -- defined as cash provided by operating activities less CapEx -- was approximately $110 million compared to our prior outlook of $180 million. The variance in cash flow was attributed to three key factors. First, vendor payable terms, where we are utilizing the strength of our balance sheet to partner with key vendors who have proactively stepped forward with options or opportunities to support our strategic initiatives. Second, the timing of the 53rd week pulled our February rent check into fiscal 2017 cash payments. Third and finally, select payments that were originally planned for 2018 were pulled forward into fiscal 2017 in order to enhance our tax reform savings opportunities. The entirety of our cash flow was returned to you, our shareholders.

We ended fiscal 2017 with $51 million of cash and cash equivalents and $200 million of borrowings under our credit facility. This compared to $51 million of cash and cash equivalents and $106 million of borrowings under our credit facility last year. Our increase in debt year over year is primarily a result of higher CapEx investment and the three cash flow factors I just mentioned. For the full year fiscal 2017, we returned $195 million of our cash to shareholders in the form of quarterly dividend payments of $45 million and share repurchases of $150 million. As a reminder, our share repurchase investment of $150 million for the year totaled 3.1 million shares at an average price of $48.04, or approximately 11% below yesterday's closing price. We believe this strategy adds long-term value and is an important enhancement of overall shareholder return.

Before discussing guidance, I want to spend a moment sharing a few thoughts on the expected impact of corporate tax reform. Similar to other retailers, we expect the legislation recently signed into law will lower our blended tax rate in fiscal 2018. The company expects to realize a cash benefit of approximately $35 million and is planning to reinvest into the business approximately 70% of the benefit while returning the remaining 30% to you, our shareholders. The company plans for the reinvestment to focus primarily toward our associates to increase engagement, improve our competitive positioning, and enhance our comprehensive benefits offering with the goal of becoming more of an employer of choice. In addition to our teams, we also intend to invest a portion of these savings into the introduction of the new brand identity with more extensive television and media coverage while also testing certain extended delivery and shipping capabilities from our e-commerce platform.

Moving on to guidance, for fiscal 2018, we estimate full-year income to be in the range of $4.75 to $4.95 per diluted share, representing a 7% to 11% increase compared to adjusted income of $4.45 per diluted share in 2017. As a reminder, fiscal 2017 was operating under a 53-week retail calendar, and we estimate the impact of the extra week added approximately $0.09 per diluted share for the year. Our fiscal 2018 guidance is based on a comparable store sales increase in the low single digits and total sales flat to up slightly, as the comp increase is expected to be partially offset by a lower overall store count.

The gross margin rate for fiscal 2018 is expected to be up slightly compared to last year. As mentioned in our Q4 remarks, we are continuing to see favorable and lower shrink results from our store inventories. Congratulations to Nick and the stores team and Steve and the asset protection group for their passion and hard work to leverage new systems and new processes. We also expect some level of favorable impact from our merchandising mix, assuming ownable categories and Soft Home outperform the store. Offsetting some of this good news are the likely challenges and pressures from rising product and transportation costs, and yet to be determined is what if any tariff actions actually occur.

From an SG&A perspective, expenses as a percent of sales are expected to increase year over year. The core operations of the business prior to our strategic investments are actually expected to generate some SG&A leverage on a low single-digit comp. The forecasted overall deleverage results solely from communicated investments in Store of the Future and our new corporate headquarters, along with today's announced decision to reinvest roughly $25 million of tax reform savings, an amount which moves from below the line or after tax to above the line and included in our operating profit results.

For our e-commerce operations, we're estimating net sales of approximately $32 million to $35 million and a net operating loss of approximately $9 million to $10 million. This compares favorably to net sales of approximately $24 million and a net operating loss of approximately $11 million last year. For the year, capital expenditures are expected to be approximately $225 million to $230 million. Maintenance capital is estimated to be about $50 million to $55 million, which covers our stores and our DCs. Investments in the market-based rollout of Store of the Future will represent approximately $50 million in 2018.

New store capital is estimated to be approximately $20 million. We're opening 30 new stores, the majority of which will continue to be relocations. We also estimate in this model we could close as many as 40 stores. Next, investments in our new California distribution center are expected to be approximately $60 million in fiscal '18. Finally, investments in other strategic initiatives will represent approximately $40 million to $45 million of CapEx in 2018.

Depreciation expense for fiscal '18 is forecasted at approximately $120 million against $117 million in 2017. Looking at the rest of the P&L, interest expense is expected to be approximately $8 million and the effective income tax rate is expected to be in the range of 25.5% to 26.5%. We believe this level of financial performance will result in cash flow of approximately $120 million to $130 million.

In support of our shareholder return initiatives, we anticipate returning approximately $150 million to you, our shareholders, during fiscal 2018. We announced today our Board of Directors approved a new share repurchase program providing for the repurchase of up to $100 million of our common shares. Assuming completion during 2018, we estimate the average diluted share count to be approximately 41 million to 42 million shares. Also announced in a press release earlier today, the Board of Directors voted unanimously to increase the company's quarterly dividend rate by approximately 20% by declaring a quarterly cash dividend of $0.30 per common share payable on April 6, 2018 to shareholders of record as of the close of business on March 23, 2018. We believe the increased dividend rate displays the board's confidence in this team, our strategies, and our ability to continue to execute consistently and generate significant cash flow.

Assuming our fiscal '18 guidance, this new dividend rate represents approximately a 25% payout ratio, which we believe is appropriate for our company, competitive in our peer group, and well within the liquidity and cash flow potential of the business. We estimate quarterly dividend payments at this higher quarterly rate will result in approximately $50 million return to our shareholders. So, $100 million in share repurchases plus $50 million in dividend payments equals $150 million for fiscal 2018 or approximately 7% of our market cap.

In terms of our first-quarter guidance, we estimate income to be in the range of $1.15 to $1.22 per diluted share, representing a flat to 6% increase compared to last year's income of $1.15 per diluted share. Our guidance assumes comps in the range of flat to slightly negative, acknowledging February sales were below LY for a couple of identifiable reasons, and also, encouragingly, we have witnessed improved performance over the last week to ten days.

Moving on from sales to gross margin rate for the first quarter of fiscal 2018, it's expected to be higher than last year and the expense rate is expected to be higher than last year. I'll now turn the call over to Andy.

Andy Regrut -- Vice President of Investor Relations

Thanks, TJ. Anthony, we would now like to open the lines for questions.

Questions and Answers:

Operator

Thank you. Today's question and answer session will be conducted electronically. If you would like to ask a question at this time, please press *1 on your touchtone telephone. If you are using a speakerphone, please turn your speaker function off to allow your signal to reach our equipment. Once again, that's *1 if you have a question over the phone at this time. Our first question comes from Anthony Chukumba with Loop Capital Markets.

Anthony Chukumba -- Loop Capital Markets -- Managing Director

Good morning and thank you for taking my question. I guess my question was on the furniture business. It did kind of positive, but it was low single digits, and it seems like that's really slowed down over the last few quarters, and I was just wondering what you attributed that to and what you can do to potentially change that trajectory. Thank you.

Lisa Bachmann -- Executive Vice President, Chief Merchandising Officer, Chief Operating Officer

Good morning, Anthony. That's a fair question given our low single-digit comps from the last quarter, and I'll start by saying that we're very committed to this category and its growth potential, both from a long-term perspective and also from a short-term standpoint. We have a lot of great initiatives in place. I will tell you that Jennifer really has responded and loves the fashion and newness that we have delivered, both in our mattress assortment from Serta along with the upholstery recently within our Roadshow. So, we are acting swiftly to continue to deliver upon that newness for her.

I will tell you that over the long term, there's many strategic initiatives that we're looking at. We have seen success, certainly, with our financing, and very meaningful success, and we believe there's opportunity that will continue there. We're testing opportunities within our lease-to-purchase. Very recently, we offered Jennifer a $49.00 down payment, which was really successful for us, and we will continue to test other key transaction-type items in the spring. Also, looking at our financing programs, including our Big Lots credit card, and the opportunities that may exist there.

Again, from a merchandising perspective, quality and newness continues to just be a real focus for us, and we will continue -- as I said -- to introduce newness because Jennifer is expecting that. You're going to see a lot coming from us from a marketing standpoint as well, beginning with better presentations and the way in which we're presenting the product in our digital and television, and really helping Jennifer understand how to decorate her home with our furniture. E-commerce is also another great opportunity for us and we've recently introduced supplier direct fulfillment in a great assortment of product -- more of an extension of what we're able to offer in our stores -- and we're also looking to introduce non-parcel in spring -- again, giving us an opportunity to deliver more assortment to Jennifer than we're capable of doing today.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

I would add a couple things, Anthony. From a stores perspective, Nick and his teams rolled out Furniture Sales Training 2.0 during the fall season. Clearly, our associates and store team leaders understand to win in their store, they have to win in furniture, so they've really rallied behind that. I would also point out that we're very encouraged by the results that we see in furniture in our Store of the Future stores, where we've pulled it forward, given it more air or more space to breath so that Jennifer can actually see and picture that product in her living room or in her home, which is, again, a key challenge that she has. She needs our help in terms of how to decorate her home, and I think Store of the Future does a great job in moving toward that.

So, I think as Lisa mentioned, there's a number of different long-term strategic ideas and initiatives to continue to focus and grow this category. In the short term, it's all about newness and freshness, and Robert and the team are all over it. So, I think we feel very good about where we're heading for the balance of spring season, and more importantly, long-term.

Anthony Chukumba -- Loop Capital Markets -- Managing Director

That's helpful. Thank you.

Operator

Our next question comes from Patrick McKeever with MKM Partners.

Patrick McKeever -- MKM Partners -- Managing Director

Thanks very much. TJ, you mentioned February was below last year and there were a couple of reasons. Just wondering if you could run through those couple of reasons. And then, on the e-commerce -- it's growing nicely. I guess the guidance for 2018 implies close to 40% year-over-year growth, but still, a decent loss anticipated there and $30 million-plus relative to your total business is very small. So, my question is thinking about e-commerce strategically, since you rolled it out two or three years ago, what are your longer-term thoughts now at this juncture on e-commerce and the role it will play in the business overall?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Patrick, I'll speak to February, and maybe Lisa and I can tag-team on the e-commerce. I'll take a step back and go into the fourth quarter. As we stepped through November, December, January for you all and helped you understand the cadence, if you were to look at Q4 relative to the midpoint of the range, I would say two-thirds to 75% of the variance to the middle of our comp range all came in the month of January, and it all came in the middle of the parts of January, where we know as we're introducing Lawn and Garden in our warmer stores and throughout the country, and as we're building Furniture and Furniture starts to become an important part of the business, each of those categories -- weather matters. Weather matters for Furniture because it's cash and carry. Weather matters for Lawn and Garden because we're asking her to go to a new season and start to think about outdoor.

It's not an excuse, but it's important that you understand that we understand where we're off track or where we might have come up a little bit short in the fourth quarter. It was really about the middle part of January. November and December were very close to our internal plans. Taking that thought process forward, Patrick, we look at February, and I think oftentimes, we think about February last year and all the miss that was related to tax refund activity, and that was very well-documented. I think what wasn't as well-documented was the fact that it was one of the more milder Februaries on record in the last 50 years. Again, that matters in our business when we think about the introduction of Lawn and Garden in the new season. It matters when we're asking Jennifer to essentially buy it today, take it home today in her car, truck, or otherwise. So, again, it's not an excuse. It's something we need to understand how that impacts our business. That was a challenge in the first couple weeks of February.

I think the second piece to my prepared comments that we understand is that Presidents' Day and that Presidents' Day week was very difficult in the furniture business, and I think there were a couple select competitors out there that Lisa can accentuate that were very promotional and, from our view, bought the business. That's not our model and it was a challenge in that Presidents' Day time period. I'm more encouraged, though, that when we came out of that in the last week of February and even in the first week of March, as things have normalized a little bit more, our business responded. It responded in total and it responded in Furniture and in Lawn and Garden.

To accentuate the point even further, Patrick, we know that our best-performing regions in the country during fourth quarter and in February were the West Coast regions. It's no surprise to us -- again, it's our level of understanding of what's going on in the business so that we don't overreact or that, so we can communicate effectively to our teams and to you. So, Lisa, if you want to add to February or e-commerce?

Lisa Bachmann -- Executive Vice President, Chief Merchandising Officer, Chief Operating Officer

I think you've covered the February very well, TJ. I'll talk a little bit about the e-commerce piece. We're very happy with where we are with the e-commerce business. Erica and team did a fantastic job in 2017 in building that business, and working with our merchandising team, and actually expanding our product offering. We introduced Extended Aisle and, very late in the year, introduced much more of our supplier direct fulfillment product, predominantly in Furniture. Jennifer is absolutely loving our ownable product that's online, from Furniture, to Seasonal, and also to our Home assortment, so our strategy is to continue to focus on that and do it in a way that we're very comfortable with the growth and the approach to our strategies.

We're also introducing more capabilities online for Jennifer to improve upon her shopping experience, and again, be able to give her a great shopping experience with expanded assortment to go along with it. So, as you noted, Patrick, the 40% increase year-over-year growth is a strong increase. We will continue to work very closely on that growth, and as I said, we're very happy with where we are.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

I totally agree. Lisa and I spend time with the e-commerce team once a week, which is a lot of fun for us -- probably not as much fun for them, but they've taught us a lot about it, and now, with Steve Haffer on board, he has a much longer experience in this base than what we've had prior. So, I think we feel very good about the strategic direction and leadership.

I also think, Patrick, to your comment around the operating loss is moving in the right direction, maybe not as quickly as some might like, but I think it was very important early on that we stabilize this business, and make sure that we have the processes and disciplines in place, and we do, and now, it's time to move into that mode of trying to grow the top line -- grow it in categories that we're known for, that Jennifer trusts us for, and that's really what you see on the website. So, we're actually pretty excited or pretty interested to see how this year plays out because those bigger-ticket products online for us are where we can further differentiate.

Patrick McKeever -- MKM Partners -- Managing Director

And then, TJ, on the guidance for the first quarter, I know you have tougher comparisons in March and April. If I recall correctly, those months last year were up low to mid-single, so I assume your flat to slightly negative comp guidance takes that into consideration. And also, anything on the timing of Easter this year -- the two weeks earlier Easter?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Obviously, our guidance takes that into account, Patrick. I think last year was definitely a unique situation with the tardiness of tax refunds, so I don't worry so much about the prior-year comparison. I guess from our point of view, we're expecting March and April combined to be up in that low single-digit range, which is where the rest of the year is. So, we're totally comfortable with that and we're working hard to get there. I think from our point of view strategically, though -- and I know you spend a ton of time in our stores, so you've probably already noticed this -- in many stores or most stores, we've actually expanded the opportunity for bigger-ticket furniture in terms of presentation, and that's all based on demand and missed opportunities last year.

So, I think particularly in March and April, but maybe more important, as we move into second quarter, the big sales opportunity in Lawn and Garden and Summer is really a key driver, so we're excited about that. I think we all believe we have a very strong promotional calendar for March and April, both in total and compared to last year, so I think we all believe that we're as prepared as we can be for the next eight or nine weeks of the quarter.

Patrick McKeever -- MKM Partners -- Managing Director

Great, thank you.

Operator

Our next question comes from Dan Wewer with Raymond James.

Dan Wewer -- Raymond James -- Managing Director

Hi. TJ, I wanted to ask about Store of the Future. I think originally, there were some comments that at least a 5% sales lift would be needed for the economics of the investment to pay off. Can you talk about the sales lift that you achieved in Phoenix and in Columbus? And then, also, how did the cost for the first 30 Stores of the Future compare to the original budget, and will that increase or decrease over the next 180 plan for this coming year?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Great question, Dan. Candidly, I think as a group, we've been looking forward to talking about Store of the Future and some of the really good results we've been seeing there. Again, thanks to Nick, and Gary Huber, and Bill Boaz, and their teams, in those two key markets of Columbus and Phoenix, we have performed very well. So, I think our initial comments at the investor conference -- and even maybe on a subsequent call in December -- was depending on the store and the market, we could meet anywhere between a mid-single to high single-digit comp to make the investment make sense over a five-year time horizon, which is generally our lease option or our lease term.

Sitting here today, we remain very comfortable with those sales assumptions based on results in Phoenix and Columbus. I would tell you Columbus is performing every bit in line with those results and Phoenix is actually performing a little bit better. The important part, Dan, is that we're gaining a really good understanding of what some of those key drivers are. Obviously, Furniture, Soft Home, and Seasonal moving to the front of the store. They're accounting for upwards of 70% to 75% of the lift we're seeing in the total box, so that's been validated for us that that's a good move.

Additionally, in the balance of the store, we're seeing pretty good results in some of the other categories as well, recognizing that they're getting -- I'll say less of a position than they might have had in the past. So, that's a positive data point for us, too. I think another result or learning so far is we're actually seeing a nice mix between growing the basket and seeing a higher transaction count. Again, that's something that you know from following us for a long period of time, we've been challenged with transaction count, so that's another positive data point.

From an execution standpoint -- again, kudos to Nick and the team. They have this down, Dan. They have executed every bit on their plan from a cost standpoint, from a payroll standpoint, from a calendar standpoint. They've put together the right procedures and controls, so we can transfer those learnings to the next markets. We've actually pulled people out of their day job or their normal job and put them in charge of this project to ensure that the execution is solid.

When I talk about execution being solid, it's more than cost. For us, one of the anxious points was always going to be when the store is being remodeled in that four- to six-week period, what happens to sales? These remodels are being done overnight, and what we're seeing is at 9:00 in the morning, the store is ready for Jennifer, so we're seeing very little disruption to volume at all during the construction period, and then, when we reopen or the remodel is complete, that's when we see that incremental lift, so we feel good about that data point.

You also ask about other costs. In terms of capital, we're right on our plan, if not slightly below our plan. So, you may recall we estimated roughly about $400,000.00 per store, and again, some stores are higher, and some stores are lower. I have no concerns about that number. I actually believe that when the dust settles at the end of the year, we'll be below that number. Again, I think the important part to mention here is it's a cross-functional effort, so in driving costs lower on capital, you've got a purchasing group and you've got a construction team that's doing great work, and competitively bidding product, and bidding services. So, I think, Dan, on most every aspect, we're as encouraged if not more so than when we talked originally. There have been a couple learnings along the way, so we feel very good about where we are.

Dan Wewer -- Raymond James -- Managing Director

Let me ask you this: Roughly 14% of the store base will be transitioning to Store of the Future by the end of 2019. If the sales lift continues, would you not expect the total company same-store sales to be above that low single-digit rate by the fourth quarter of the year?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

That's not our internal plan, Dan. I'll say a bigger observation for us is we actually think incrementally as the year goes on, comps have the opportunity to get a little better each quarter, understanding that the fourth quarter we just came off of -- and, even if we'd have been right in the middle of our guidance, we were very consistent in saying that the fourth quarter is the more challenging quarter for us sometimes to comp, as our mix changes and as people do a lot of different things -- and sometimes, crazy things -- online.

To drive volume, that's just not been our approach or our model, so for us to feel as if we've got an opportunity to comp up low single digits and see volume trends improve as we move throughout the year, understanding that fourth-quarter dynamic -- I think that is a more appropriate way for me to answer your question. We're excited about being able to touch 15% of the fleet this year. We're also excited about being able to open new stores in this format, and we've already seen success there in South Carolina, in Mesa Arizona, in the store we just reopened in the Houston area. They've been very strong on new store opening volume, so that's another good fact for us to understand.

Dan Wewer -- Raymond James -- Managing Director

Just a real quick question: Why invest $60 million in a new distribution center in California if the store base is going to shrink?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

We have some very high-volume, high-profit stores on the West Coast, Dan, and our distribution center in Rancho Cucamonga -- Carlos and George do a great job with what they have. They're a little bit...they've got a little bit of one hand tied behind their back from a physical plant, from an equipment, from a technology standpoint, and we actually own that distribution center, as you probably know, so we know there's high value there, Dan. So, when the dust settles and we move into our new DC in Apple Valley, we'll have a CapEx number that's in total probably in the $80 million to $90 million range. We're going to finance the rest through a synthetic lease.

The point in mentioning that is our building in Rancho Cucamonga, which we own, we will ultimately sell at one point. Early indications and unsolicited offers are much higher than the capital we're going to put out for Apple Valley, so net, we'll end up cash in pocket and favorable. So, that's part of the decision, Dan, but it's more about productivity and being able to support the ownable categories in our future growth in our very profitable markets.

Dan Wewer -- Raymond James -- Managing Director

Great, thank you.

Operator

Our next question comes from Paul Trussell with Deutsche Bank.

Gabriella Carbone -- Deutsche Bank -- Analyst

Hi, good morning. This is Gabby Carbone on for Paul. Thanks for taking our question. Would you go into a bit more detail on the decision to reinvest 70% of your tax savings and could you break that down in regard to what's going toward wages versus the e-commerce initiatives you mentioned and the television and media coverage? Thanks.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Sure. Great question, Gabby. We spent a lot of time as a leadership team coming up with the proposal and we spent a lot of time with our Board of Directors this week discussing said proposal. I think from our point of view, while maybe in the past, from our results and our turnover rates and our ability to attract talent, I think we've felt very good about where we've been, but we understand looking forward that the market is shifting, and while we have a very comprehensive package for benefits that is more than just the wage rate -- again, looking forward, taking a proactive view with the competitive landscape, we felt it was appropriate to reinvest some of those dollars to remain top-of-mind or remain an important employer in a lot of our markets.

It's a combination of a lot of things, Gabby, and I'll be general because we haven't talked a lot about this with our own team of associates. So, we like to communicate with them first, but I'll call it a comprehensive opportunity for really all associates across the company to participate in tax savings from a benefits perspective. It's not about any one thing. It's not just about wages or just about benefits. It's a comprehensive opportunity for all of our associates to benefit. We think that's really important. We know we have a strong culture. We know because we measure our engagement on an annual basis with our associates from store team lead all the way through the general office here in Columbus. That's what makes our culture strong. Our associates have bought into the strategy and they want to win. We want to continue that momentum.

The second part of your question around some of the marketing opportunities -- again, we know that we have a very good handle on what we think Jennifer expects from us and where we want to take the brand is to really enhance that through brand identity work, which we'll launch in April and on into second quarter. That's not just TV and digital, but it's also communicating the "why" and training our associates on how to portray that new feel of a community retailer in our stores. So, we think that putting some funds behind that is really important.

As Lisa mentioned in her e-commerce commentary, as we move toward bigger, bulkier product, different forms of getting some of our ownable categories to Jennifer, there's a cost associated with that. We want to be prepared to test different ideas on how to maximize that opportunity with Jennifer. So, there was a significant amount of thought that went into it and a significant amount of thought and challenge from our board of directors as well, but in the end, we think a 70/30 split of reinvesting 70% and sending 30% back to our shareholders is appropriate for where we want to go.

Gabriella Carbone -- Deutsche Bank -- Analyst

Great. Thank you so much for the color.

Operator

Our next question comes from Vincent Sinisi with Morgan Stanley.

Vincent Sinisi -- Morgan Stanley -- Analyst

Hey, terrific. Good morning, guys. Thanks very much for taking my question. I wanted to ask -- your comment around February, and specifically around the Presidents' Day holiday -- on the competitive front, you said promotions had increased a bit. I wanted to ask a little bit further -- was that across the store or was that concentrated in Furniture? It was encouraging to hear that in the stores that are in the Store of the Future format, that Furniture specifically is the best-performing one. I guess with the comments that things more recently have improved, what are you seeing specifically from the competitive environment, and also, with the Store of the Future, is the variance between the performance in pretty close proximity, meaning are all 30 having similar category performance?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

There's a lot of questions there.

Vincent Sinisi -- Morgan Stanley -- Analyst

It all kind of revolves around one basic thing.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

I know. You want to know how high sales can go and when. I think we understand that. Maybe Lisa will start off with some February and competitive insights, and then I'll come back on some of the Store of the Future details.

Lisa Bachmann -- Executive Vice President, Chief Merchandising Officer, Chief Operating Officer

Sure. Vincent, what we learned in February, both from talking with our vendors and also just seeing from what was going on in the marketplace ourselves and the competitiveness on television, there clearly was a specialty player out there that I think TJ said was trying to buy the business during February and was extremely competitive from a pricing, from an offering standpoint, and again, from our intel, we're told that that was done at a very significant erosion to margin, and certainly not a sustainable model. But, that said, as we exited the Presidents' Day event, again, we became -- our business certainly became back on track to what some of our expectations were. So, that's why we clearly feel that some of the extraordinary things that took place during February and specifically during the Presidents' Day holiday had a short-term implication on our performance.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Yeah, and I think from a Store of the Future point of view, we do see difference in performance by stores. I would tell you we can count maybe one or two stores where we have not seen lifts and we understand those reasons. So, we opened a new store here in Columbus that's cannibalizing another store. We get that.

But, broadly speaking, we're seeing very good performance across the large majority of our stores. There can be a range of performance because in some of these locations, you have to understand we've had Seasonal and Furniture tucked away in the back of the store for a long time, and oftentimes, Jennifer might not even know we were in the business. So, bringing it forward and really opening up the store is a significant change when she walks in, to the point where sometimes, she walks in, walks back out, and checks the sign up top. "Am I in the right place?"

But, Martha, and Michelle, and Nick, and the entire team have done a great job of really looking at every store, store-by-store layouts, fixturing, where do categories and departments go, where do we need to potentially downsize a category to make more room in the front of the store? It's been a very detailed process store by store by store, so we expect that the volume differences are going to be different store by store, but when we look at it in totality in a market like Columbus, or in a market like Phoenix, or even in a market like Charleston and Myrtle Beach, as those stores are now days into their unveil, so to speak, without marketing, they're seeing very nice lifts.

So, hopefully, that helps you a little bit, but I think -- again, I'll go back to a comment I made with Dan's question. The large majority of the data points that we've seen so far are as good if not better than what we would have expected, and the learnings have been quickly actioned by the entire KRA team.

Vincent Sinisi -- Morgan Stanley -- Analyst

Okay, all right. That's very helpful. Thank you. And, if you don't mind, if I could just slide in one -- truly, one quick follow-up, you did have in the fourth quarter specifically nice gross margin performance relative to, as you mentioned, your expectations. Within the commentary you did mention about freight, any further color there or ability to mitigate some of the higher costs, or is it pretty in line with your expectations for the coming few quarters? Thanks a lot.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Sure. On the last call, we talked about not knowing the results of our physical inventories. Now, we know them, and that was a key variance from beginning of quarter to end of quarter. That's not in any way, shape, or form should that diminish the hard work that was done by the merchant teams to manage their inventories, manage their markdowns appropriately, and come into the new season fresh and ready for business. So, all of that worked well together.

From a freight perspective, I think you know this and many others do, but just for the benefit of saying it, inbound freight for us is in gross margin, outbound freight is in SG&A. From an inbound perspective and how it relates to gross margin, we are a fairly significant importer of product coming out of China and some of the Asian countries, so we do have an opportunity and tend to get fairly good results from a rate perspective, so I feel good about where we stand currently there.

The more significant challenge is on inbound freight from a domestic standpoint, and we -- like every other retailer that you've probably covered so far this earnings season -- are paying attention to those costs very closely. There are things that we can do between the logistics team and our merchandising teams to make sure that we're being smart about how we go about it, and being on time with deliveries, and making sure we're cubing out trailers and doing all of those things. Our team is all over that. The rate card, though, is a little bit of a variable, and to the extent possible, we've tried to factor that into our guidance. We're paying very close attention to it and we think we're doing everything we can that's within our control.

Vincent Sinisi -- Morgan Stanley -- Analyst

All right. Thanks a lot. Good luck, guys.

Operator

Our next question comes from Alvin Concepcion with Citi.

Alvin Concepcion -- Citigroup Research -- Vice President/Analyst

Thank you for taking my question as well. I'm just wondering if you could talk about how much weather impacted your comps in the quarter, and also, as a follow-up to that, I just wanted to get a better understanding of your guidance. You're expecting a flat to slightly negative comp in the first quarter. It's the easiest compare for the year; it just gets tougher from there. So, I'm just wondering what gives you confidence that comps will pick up more significantly as the year progresses.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Sure, Alvin. Very fair questions. Again, none of us enjoy talking about weather, but we need to understand it and how it impacts our business so we can make good decisions. I think the comment that I made earlier was in the fourth quarter, if you look at the midpoint of our comp guidance and where we actually ended up, I'd say easily two-thirds of that -- if not three-quarters -- of the variance came in those middle weeks in the month of January. So, the biggest, most important, most competitive months of November and December, we were very close to our internal plan from a sales perspective. That's encouraging to us. We don't necessarily control the weather in the month of January.

As we look forward to the first quarter, yes, it's an easier compare if you just look at last-year comps. I think we all understand why last-year comps were where they were, speaking specifically to tax refunds. So, those tax refunds have been very similar almost to the day this year. Again, I know it's an easier comparison when you look at it on the page, but in terms of comp activity, it's comp activity, and very similar. I guess what gives us confidence, Alvin -- and, Lisa should certainly kick in here from a merchandising perspective -- is the look forward, the look of the store currently, the enhanced quality and product that we're offering, and specifically, in those regions of the country -- I'll reference the West Coast again -- our business is still in positive territory even in the month of February.

Lisa Bachmann -- Executive Vice President, Chief Merchandising Officer, Chief Operating Officer

TJ, I think I'll add to that. From a confidence standpoint, we also have the benefit of some warmer-weather regions that can give us good insight into how some of our newness is performing. So, as an example, this year, we are expanding our Lawn and Garden patio furniture pretty significantly, and we've got some great product at higher price points that have clearly resonated with Jennifer, and as we look at some of the warmer-weather regions like California, we're very encouraged.

So, when you think about the weather up in New England, especially the past week and the nor'easter, we have confidence that when that weather turns, that product will really resonate and perform. Same thing with our indoor furniture. As I talked earlier, there's a lot of newness that is coming, newness that's recently landed in motion, and again, with the luxury of having visibility to other areas of the country that are impacted by some of the weather challenges that we saw in February -- again, very encouraged on the sales results there.

Alvin Concepcion -- Citigroup Research -- Vice President/Analyst

Great. Thanks for the color. I'm also just wondering if the comp benefit from Store of the Future is something that's crucial to you hitting your guidance. I'm just wondering if you could help us understand if that's something that's going to be a significant contributor.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Sure, Alvin. We go through a process of delayering the business for the plan, and then we delayer the actual weekly results against it. So, we understand if you look at the midpoint of the range that we gave as low single digits -- so, put that at a 2% for the year -- I'd say the Store of the Future comp is probably in the neighborhood of 20% to 25% of it. Again, growing as the year goes on, as we get more and more stores up and running. So, having confidence around Columbus, Phoenix, now Charleston, Myrtle Beach, Austin is on its way and on the right track. We've got three or four markets starting at the end of April once we get past Easter. All of that is working as planned. So, we're excited to get moving and get to more and more stores.

Alvin Concepcion -- Citigroup Research -- Vice President/Analyst

Great. Thank you very much.

Operator

Our next question comes from Matthew Boss with JP Morgan.

Matthew Boss -- JP Morgan Chase -- Analyst

Thanks. So, Tim, to take a step back, in September, you laid out a three-year plan which called for 5% to 8% annual operating income expansion. If I back out the extra week and the 70% tax savings reinvestment, or $25 million, I guess I'm shaking out at 3% to 4% at the midpoint of your guide for Year 1. Did anything change with the three-year plan? Should we now think about it more back-end-loaded? Any help you can provide.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Sure, Matt. Very fair question. So, in August last year with the board, in December with the board, and this week with the board, we stepped through our expectations for 2018. From our point of view, nothing's really changed in that light. We've always been focused on a low single-digit comp. We've always been focused on slight improvement in the gross margin, keeping our costs tight, but yet investing in Store of the Future, Apple Valley DC, new corporate office, those pieces -- nothing's really changed in that space. The only thing that's really different in that timeframe is the tax reform savings and the opportunity to reinvest that. There's some income statement geography that goes along with that. We think it's the right thing to do, the board agreed, and that's why we've moved forward.

So, nothing has really changed in that space. I do think when we were at the investor conference back in September, I do know that we were consistent in talking about 2018 being the most challenging of those three years for that simple reason that there's the beginning of three major investments that happened almost simultaneously, and that does impact the P&L and the CapEx, which you see in our guidance, for this year. As we move into '19 and '20, each of those starts to moderate more back to the model that you had seen in the last three years.

Matthew Boss -- JP Morgan Chase -- Analyst

Okay. And then, just a follow-up -- inventory per store. I think it exited the year up 3%. It's 200 basis points above the 3Q level. Can you speak to comfort with the level and composition of your inventories today?

Lisa Bachmann -- Executive Vice President, Chief Merchandising Officer, Chief Operating Officer

Sure. First of all, I think we had -- with the 3% increase -- a little bit of a timing difference there because of the 53rd week, but we were very well-positioned with our furniture. Also, patio furniture was coming in, and as I talked about earlier, we had a very large expansion planned this year, so we're very excited about the opportunity that's in front of us with that inventory positioning. Some of it was timing, but all of it was planned, so we're very comfortable with where we're positioned.

Matthew Boss -- JP Morgan Chase -- Analyst

Okay, great.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

I agree, Matt.

Operator

Our next question comes from Peter Keith with Piper Jaffray.

Peter Keith -- Piper Jaffray -- Principal

Hi. Thanks. Good morning, everyone. I was wondering if you could perhaps put on your economist hats and talk about the outlook for your consumer, various changes going on that may be helping or hurting, and I'm talking specifically about wage inflation or tax reform benefits offset by higher gas prices. Could you provide your thoughts on that and if you think your core consumer is going to be better or worse off in 2018?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Actually, Peter, I think you did a lot of work around this, and we read your note, and I think you can probably speak in a little more detail than we can. I think we understand that there are certainly some positive changes in the macro environment for Jennifer and for our core customer base. So, that's encouraging to us. Yes, we would like to see gas prices remain moderate, but again, those things aren't necessarily parts that are within our control, but I think on balance, we feel as if this all of those factors together are a net positive over time, so I'm not sure what else we could add to the work that's been done by you and a couple of others on the street in terms of trying to understand that.

Peter Keith -- Piper Jaffray -- Principal

Okay, that's fair enough. I appreciate the commentary. Maybe one other strategic question for Lisa -- so, looking at the mattress category -- and, I think the specialty player you're talking about over Presidents' Day is mattress-related -- it seems like that category is getting hyper-promotional around adjustable bases and you're seeing substantial deflation in that category. That doesn't seem to be an area where you guys have an offering right now. I'm wondering if that makes you a little less competitive. Is there any thought to bringing in adjustable bases or are there any logistical issues around that that perhaps prevent it?

Lisa Bachmann -- Executive Vice President, Chief Merchandising Officer, Chief Operating Officer

Actually, that's a great question, and I'm really proud to say that the team has tested adjustable bases, and it has really resonated with Jennifer, and we are launching that in spring of '18. It will be in a select subset of our stores to start with, and we'll also be offering it online through our supplier direct fulfillment. So, we're very excited about being able to bring that to Jennifer. Again, it's another example of the newness that we're continuing to work toward for her.

Peter Keith -- Piper Jaffray -- Principal

Okay, that's great to hear. Thanks a lot, and good luck in the coming year.

Operator

Our next question from Brian Nagel with Oppenheimer.

Brian Nagel -- Oppenheimer & Co. -- Managing Director

Hi. Good morning. Thanks for taking my question. So, the first question I had -- just with regard to the reinvestment, it seems as though the plans -- at least, from our preview -- the plans you're laying out today suggest a higher reinvestment rate than other retailers. So, taking into consideration all the color that you gave and recognizing that you haven't given guidance further out beyond this year, as we look beyond 2018, should there be some type of shift in that reinvestment rate? In other words, is reinvestment likely to be higher in '18 than it will be in following years?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Very fair question, Brian. I know in your note, you had us reinvesting roughly half of the tax reform savings, and we did go a little bit higher than that. I do think, too, it's important to look at the absolute dollars, so I would suggest $25 million or $35 million is probably on the low side of what you're hearing others talk about in terms of overall dollars. So, our rate might look a little bit higher, but from our point of view, it's, again, more about looking forward in the competitive landscape and staying toward the top of the list of companies that potential associates consider. We do see this as a unique opportunity, a unique point in time, and '18 is kind of an adjustment in that way. I would suggest to you the only potential increment as we move into 2019 might be anything that we're implementing in '18 that doesn't have a full-year runway yet.

So, again, we're sitting here on March 9th, and we're six weeks into the year almost, and to implement some of these changes probably takes us out to May 1st. So, as we get into next year, you've got a quarter that is obviously not going to be anniversarying anything. So, that would be the only thing I could think off the top of my head, Brian, that might be unique about next year. I think our challenge as a business is yes, we've got some new costs here as we move into '19. We have to stay focused on that core operating model and making sure low single-digit comp -- we're generating operating margin leverage again. We did a very good job of that from '14 through '17. '18 here, we've got investment and a reset with the tax piece, and '19, we need to return to that model of leverage.

Brian Nagel -- Oppenheimer & Co. -- Managing Director

Got it. That's helpful. My follow-up question -- with regard to tax refunds and that impact to your business -- so, you mentioned in response to a question or in your prepared comments that basically, tax refunds are tracking consistent this year with where they were last year. We're seeing that in our data as well. The question I have is is that dynamic necessarily a neutral for your sales, or is there still a negative that those refunds are still coming back to consumers later than they were -- maybe not last year, but a couple years ago?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

I'm not sure how to answer that. The tax return dollars have actually comped almost to the day, and we have data going back six or seven years because we can't help ourselves -- we like to track that kind of stuff. It materially impacts our business on the day when a lot of the money starts going out. We know that. Would our business be better -- I think if I'm understanding your question, would our business potentially be better in the first quarter if, say, the IRS started sending out money again in late January or early February? I would imagine it would be. Is there a chance that that is going to happen? Probably not.

I think the IRS -- like most of us -- likes having the float. I can't imagine them taking a step back and starting to send money out early again. So, we don't think about that too much. We want to make sure we've got our promotional calendar aligned to when the money is out there, and I think we did that this year. It's unfortunate that we had some of the challenges around Presidents' Day that we don't get to fully understand or fully see the benefit.

Brian Nagel -- Oppenheimer & Co. -- Managing Director

That's helpful. Thank you.

Operator

Our next question comes from Sean Kras with Barclays.

Sean Kras -- Barclays Capital -- Analyst

Hey, guys. Good morning and thanks for taking my questions. So, I'm trying to understand the outlook for the base business. I want to go back to the guidance for a second. So, my math at the midpoint gets me to an EBIT margin of about 4.9% to 5% and EBIT dollars down about 10% on a 52-week adjusted basis. Am I thinking about that right?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

I guess from our point of view, Sean, I think that's probably a little heavy, or maybe a little too pessimistic. Again, we really looked at -- as you may recall from the past -- that a low single-digit comp in our base business or our core business generating operating profit dollar growth in the high single digits or low double digits -- that's been the model that we've strived for, and it worked for us in '14, '15, '16, and even in '17 for most of the year. That's the plan we're laying out for '18 absent the investments in Store of the Future, absent the investments around the new headquarters, and absent the investment or reinvestment of tax savings dollars. So, really, the core model hasn't changed all that much. It's still levering absent those investments, but it's the uniqueness of all these coming together at once. So, I think you're maybe a little pessimistic on the operating profit piece, but we didn't really get down to that level of detail on our guidance.

Sean Kras -- Barclays Capital -- Analyst

Okay. I was trying to build up to it. That's helpful. In terms of the 70% of tax reform being reinvested back into the business, you gave a little bit of commentary on the timing of that. I think you mentioned it being until May until some of this starts. But, in terms of that dollar amount -- that $25 million or so -- that's going back into the business, how much of that is in your plan to be reinvested this year?

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

That is the number in our plan to be reinvested this year, $25 million.

Sean Kras -- Barclays Capital -- Analyst

Okay, so it's that run rate. Got it. And then, on domestic freight -- you spoke about this earlier as well -- I'm just wondering if you can quantify exactly what that headwind might be in terms of either basis points or dollars.

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

I don't think we've historically quantified that, Sean. I apologize for that, but that's probably not something that we want to start breaking out now. I would tell you that again, historically, that's been a net neutral to a little bit of a tailwind for us, particularly as we go back and think about 2016, probably a neutral in '17. It's probably a little bit of a headwind as we move into 2018.

Sean Kras -- Barclays Capital -- Analyst

Okay. And then, just one last one from me. Obviously, Furniture, Soft Home, and Seasonal have been important drivers of the business. I'm just wondering how you're thinking about Consumables and Food this year. Obviously, we've seen some improvements in the business. Just wondering if you think that those categories can continue to have their current run rate or maybe even improve a little bit in 2018.

Lisa Bachmann -- Executive Vice President, Chief Merchandising Officer, Chief Operating Officer

I'll take that one. Yeah, Food and Consumables -- we continue to believe clearly that we can win in these categories. Closeouts continue to be an important part of that value proposition, and also, what Jennifer has told us in both Food and Consumables is that consistency of assortment is important to her as well. In '17, we expanded some of our NVO product lines. We're continuing to do that in '18 and we're also introducing more of the brands that she has told us that she would like to see more consistently in our business. So, strong performance in our HVC and our over-the-counter assortments, the team has done an outstanding job there in growing that business. And so, again, we have continued to see positive signs from the Consumable growth and have no reason to believe that that will not continue. It is part of our plan, it's part of the expansion of our assortment there, and we feel very good about the strategies that we have set forth there.

Sean Kras -- Barclays Capital -- Analyst

That's great. I appreciate the time. Thank you.

Andy Regrut -- Vice President of Investor Relations

Okay, thank you, everyone. Anthony, would you please close the call with replay instructions?

Operator

Thank you. Ladies and gentlemen, a replay of this call will be available to you by noon Eastern today, 12:00. The replay will end at 11:59 p.m. Eastern on Friday, March 23rd, 2018. You may access the replay by dialing toll-free U.S.A. and Canada 1-888-203-1112 and enter the replay passcode of 1281773#. Thank you for your participation.

Duration: 76 minutes

Call participants:

Andy Regrut -- Vice President of Investor Relations

Lisa Bachmann -- Executive Vice President, Chief Merchandising Officer, Chief Operating Officer

Tim Johnson -- Executive Vice President, Chief Administrative Officer, Chief Financial Officer

Anthony Chukumba -- Loop Capital Markets -- Managing Director

Patrick McKeever -- MKM Partners -- Managing Director

Dan Wewer -- Raymond James -- Managing Director

Gabriella Carbone -- Deutsche Bank -- Analyst

Vincent Sinisi -- Morgan Stanley -- Analyst

Alvin Concepcion -- Citigroup Research -- Vice President/Analyst

Matthew Boss -- JP Morgan Chase -- Analyst

Peter Keith -- Piper Jaffray -- Principal

Brian Nagel -- Oppenheimer & Co. -- Managing Director

Sean Kras -- Barclays Capital -- Analyst

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