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Big Lots' Q3 harsher than usual as chain suffers profit loss

Columbus, Ohio - The third quarter proved to be another challenging one for closeout chain Big Lots Inc.

Only this year, the period was especially difficult as a result of external factors, including a hefty hit from Hurricane Sandy in late October, resulting in a profit loss and declines in sales and comps.

Big Lots reported a loss from continuing operations of $6.0 million, or $0.10 per diluted share, for the quarter, ended October 27, compared to income of $4.2 million, or $0.06 per diluted share, last year.

During the retailer's call this morning, chairman, ceo and president Steven Fishman explained the company's third quarter is historically "our lowest volume quarter and quite frankly, when we are in transition" as Big Lots prepares for its holiday selling season."

But for this year's Q3, in particular, the company braced for added pressures and "some anxieties on the consumer," he continued, such as "the national election, an uncertain economy, and a persisting difficult job market."

Compounding these hurdles was unforeseen severe weather, namely Sandy, which hurt Big Lots' business in the Northeastern region where Fishman said "we have a large concentration of our stores."

By division, its U.S. operations in the quarter suffered a $1.7 million loss, or $0.03 per diluted share (non-GAAP), compared to income from continuing U.S. operations of $11.4 million, $0.17 per diluted share (non-GAAP), a year ago. Net sales also struggled, dipping 1.9% to $1,095.2 million versus $1,116.8 million last year, and comparable store sales took a hit, dropping 4.9% for U.S. stores open at least fifteen months.

Better off was the company's Canadian operation, which is now starting on its second year in business. Net sales totaled $39.0 million, while incurring a net loss of $4.3 million, or $0.07 per diluted share (non-GAAP), compared to net sales of $21.5 million and a net loss of $7.1 million, or $0.11 per diluted share (non-GAAP) for the same period of fiscal 2011.

Joe Cooper, principal accounting officer, evp, and president of Big Lots Canada, explained this fledgling division saw strength in consumables, furniture, and home, "as customers continue to respond favorably to our expanded assortment, quality, and extreme values through closeouts."

Year to date, Big Lots' income from continuing operations totaled $56.9 million, or $0.93 per diluted share. The company reminded that it incurred an after-tax charge of $3.4 million during the first quarter of fiscal 2012 related to an inventory accounting change associated with the implementation of new retail inventory systems. Excluding this non-recurring, non-cash charge, adjusted income for the period totaled $60.3 million, or $0.98 per diluted share (non-GAAP), compared to $92.5 million, or $1.31 per diluted share a year ago.

Net sales for the 39 weeks came to $3,646.7 million, up 3.2% from $3,532.7 million a year ago.

Big Lots updated its guidance for fiscal 2012 to include: fourth quarter consolidated income from continuing operations of $1.91 to $2.10 per diluted share versus $1.75 per diluted share for fiscal 2011; and fiscal 2012 annual guidance for adjusted consolidated income from continuing operations of $2.86 to $3.05 per diluted share (non-GAAP) versus $2.99 per diluted share for fiscal 2011.

"This guidance assumes U.S. comparable store sales decline in the range of low to mid single digits and a total U.S. sales increase in the range of 3% to 7% [in the fourth quarter]," Fishman said. "For our Canadian operations, sales are expected to be in the range of $48 million to $52 million for the fourth quarter of fiscal 2012. As a reminder, the fourth quarter of fiscal 2012 includes 14 weeks of operations, compared to 13 weeks of operations in last year's fourth quarter results."

 

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