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Big Lots' focused on new textiles in home; sets plan to revamp Canadian business

Columbus, Ohio - Home was among Big Lots' most improved merchandise categories during its second quarter, and the chain is expecting continued momentum as it starts to implement several new initiatives - including expanding private label home textiles -- in the department through the fall.

"After a tough May, when comps were down in the mid single digits, our sales improved as the weather improved, and the combined period of June and July were relatively flat," Steve Fishman, chairman, ceo and president, explained during the 1,415-unit 48-state discounter's earnings call this morning. "The level of improvement in June and July was apparent in most major categories, particularly in seasonal, consumables, furniture and home."

He said the home business "comped down against a double-digit positive comp last year and also experienced improving trends in Q2. I told you in the last call that Doug [Wurl, evp, merchandising] and his team are strategically making changes for the fall, and I believe we're already starting to see some of the benefits of their work. It's early, but we absolutely believe our home business and the assortments will improve over the next several quarters."

These changes include ramped up offerings of home textiles developed by Big Lots, Fishman noted, as well as "real inventory initiative and investments in floor space in the top-of-bed arena" - specifically "comforters, sheet sets, blankets, throws, pillows. I think you're going to see some real exciting things there."

In terms of closeout opportunities, Fishman said "home continues to open up more vibrantly. Our team is just getting back from Asia, and Pakistan and India because of the textiles part, and we're getting more aggressive about developing our own merchandise content as more raw materials become available...We're feeling good about [home in the] third and fourth quarter and, quite frankly, that extends to the first quarter."

Also being primed for improved performance in the coming months - but more so farther on the calendar -- is the company's new Canadian operation. Three "critical immediate needs" have been identified and are being addressed as part of the company's 180-day transition plan that it has put in place to propel Big Lots Canada - formerly Liquidation World, which Big Lots acquired on July 18.

At the top of the list, said cfo Joe Cooper, is merchandise. "We need to fill shelves with great quality and extreme value merchandise. Today, inventory levels are down over 70% or so compared to prior year levels. Lots of empty shelves and a fair amount of inventory that is in stores in aged, and we're moving swiftly to liquidate."

Second is the need to recruit and hire "great talent," he said. "The organization has lost a lot of talent over the last year. As a result, we're looking to hire somewhere in the neighborhood of 15 associates in the general office with particular focus in the merchandising area, which we all know is the life blood of any business. Simply put, we need more resources to go after the merchandising opportunities and to effectively plan and control inventories."

And thirdly, the company needs to "clean up our stores and implement basic processes."

Cooper summed that Big Lots has "experience in our organization in tackling this kind of project...To execute real change takes time...We know financial results will be challenging in the back half of 2011. We expect we'll make progress in fiscal '12. However, our forecast suggests fiscal 2013 will be the first profitable year this business has seen since 2006."

Big Lots' second quarter results included a net income decline of 8.2% to $35.7 million, or 50 cents per diluted share, compare to $38.9 million, or 48 cents per diluted share in the 2010 period.

Year-to-date net income suffered less, with a 6% dip to $88.2 million, or $1.20 per diluted share, compared to $94.8 million, or $1.17 per diluted share, a year ago.

The company said that both its second quarter and year-to-date results for include a loss from continuing operations of $1.2 million, or 2 cents per diluted share (non-GAAP), related to the Canadian retail operations Big Lots assumed via its acquisition of all outstanding shares of Liquidation World Inc. last month. Excluding this impact, income from continuing operations was $36.9 million, or 52 cents per diluted share (non-GAAP), for the second quarter of fiscal 2011 and $89.4 million, or $1.22 per diluted share (non-GAAP), for the year-to-date period of fiscal 2011.

Results also include discontinued operations activity which was minimal for both the second quarter and year-to-date results of fiscal 2011 and fiscal 2010 and is discussed later in this release.

Net sales for the second quarter increased 2.2% to $1,167.1 million, compared to $1,142.3 million for the same period a year ago, and comparable store sales for U.S. stores open at least two years at the beginning of the fiscal year decreased 1.5% for the quarter.

Year-to-date net sales increased 0.7% $2,394.4 million versus $2,377.4 million last year.

Big Lots has updated its fiscal 2011 annual guidance for income from continuing operations to $2.80 to $2.90 per diluted share versus income from continuing operations of $2.83 per diluted share last year.

"This updated guidance reflects our outperformance during the second quarter and the forecasted positive impact of recent share repurchase activity, partially offset by the expected impact of our recently acquired Canadian business," the company said.

 

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