Big Lots to Push Price Points
Cecile Corral -- Home Textiles Today, June 2, 2008
Closeout retailer Big Lots is intent on adding value and new, better brands to its assortment as its defense against "very real" cost pressures from overseas, the company said as it reported historically high earnings in its first quarter ended May 3.
During the earnings call last week, Steve Fishman, chairman, president and ceo, emphasized Big Lots' recent push for higher ticket items and somewhat higher-brow brand offerings, including some new ones for the home business potentially set to roll out to stores this summer, as a means to justify unavoidable price hikes.
"We are doing everything in our power to create greater and greater value and change merchandise content as we go along. We're working with our vendor partners in this and we're recreating great value and we're going to continue to be more competitive than we have to be across all aspects of the business," Fishman said. "We're very conscious of [inflation], and we're very systematic about where we're taking price increases because it's a reality. You can say no to any manufacturer you want to, but at the end of the day they'll say, 'Just fine; we're not going to ship you'."
Absorbing these added costs from suppliers overseas and vendor partners is not an option, Fishman continued.
"There is no such thing as absorbing those costs," he said. "I don't think there's a retailer in the United States that is absorbing those costs. You're seeing real price increases for the first time in a long time on products."
During the first quarter, the 1,354-unit chain recorded net profit of $34.5 million, up 19.8% from $28.8 million in the year-ago period. EPS soared 61.5% to $0.42.
Fueled by the strong performance, Big Lots raised its full-year guidance on income from continuing operations to $1.80 to $1.90 per diluted share, over last year's total of $1.41.
Comps grew by 3.4% in the quarter, as net sales rose 2.1% to $1.15 billion.
Big Lots continued to struggle in the home category, said Fishman, who added he is nonetheless "encouraged by some areas where we've started to see some positive movement, particularly in food preparation, where the team may be a little further along in executing the strategy."
Furniture also continues to be a bright spot in home, driven by mattresses, especially Serta-branded offerings.
The current "home event" — which centers on the launch of the exclusive Jennifer Farrell collection of home furnishings — is poised to buoy the segment. Comprised largely of hard decorative home goods like vases and lamps, the celebrity designer-driven program is a move "to engineer a big deal for promotions and generate excitement," Fishman said.
"These are higher quality goods. We source them overseas, we're importing them ourselves, and were sourcing them at costs that are going to allow us to follow a glide path … we're going to take markdowns, we're going to generate buzz in our stores," he said. "It's the first time we're doing this and I think we're going to learn a lot from it. Hopefully this type of engineered deal is something we can learn a lot from and apply it to future deals and future quarters."
The recent rollout of the U.S. government's stimulus checks was another point of discussion during the call, as it has been with many other retailers' earnings conversations lately. Big Lots is not expecting a noticeable lift in sales as a result. But Fishman took the opportunity to reiterate the chain's new focus: "We're continuing to offer and promote bigger ticket items and we're having success with that."
Big Lots, Inc. and Subsidiaries
|Qtr. 5/3 (millions)||2008||2007||% change|
|Oper. Income (EBIT)||58.2||42.5||36.9|
|Per share (diluted)||0.42||0.26||61.5|
|Average gross margin||40.3%||39.6%||--|
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