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Big Lots' home business bruised in Q2; improvements in queue for Q3, holidays

Columbus, Ohio - Even though top-of-bed and overall bedding goods proved bright spots, the home department as a whole at Big Lots took a blow during the second quarter, contributing to the company's poor performance in the period and first half of 2012.

But plans are already underway to make necessary improvements in time for the all-important fourth quarter holiday selling period, noted Steve Fishman, chairman, president and ceo.

"The softness we experienced in Q1 continued into Q2," he explained. "In Q1 the challenges were centered on electronics and consumables. We intensely focused on those categories, made changes, and experienced some trend improvements in the second quarter."

As Big Lots moved through second quarter, its more discretionary categories lost their footing, "namely furniture, home and seasonal."

Fishman said the cause for home's decline was "more self-inflicted than anything. We had made major changes and major commitments to inventory and floor space for that program that got executed mid to late second quarter. Parts of that program worked, particularly top-of-bed and bedding - that's doing well. Other parts of it, from an execution standpoint, we have not done as well with [them], particularly the house-wares and the decorative areas. But we believe that we will be up and running at a better rate going into the end of the third quarter and into the fourth quarter. We believe we have a very solid program. We're already seeing receipts of that inventory."

In the second quarter, ended July 28, Big Lots took a 38% hit in net income, diving to $22.0 million from last year's $35.7 million. Income from continuing U.S. operations totaled $0.42 per diluted share (non-GAAP) compared to income from continuing U.S. operations of $0.52 per diluted share (non-GAAP) for the same period of fiscal 2011.

Better off were net sales for U.S. operations for the 13 weeks, which increased 1.7% to $1,183.0 million, compared to $1,163.2 million for the same period of fiscal 2011. Comparable store sales for U.S. stores open at least 15 months decreased 1.9% for the quarter.

For the year-to-date period, income from continuing operations totaled $62.9 million, or $1.00 per diluted share. Big Lots incurred an after-tax charge of $3.4 million, or $0.05 per diluted share, during the first quarter of fiscal 2012 related to an inventory accounting change associated with the successful implementation of new retail inventory systems. Excluding this, the result was $66.3 million, or $1.05 per diluted share (non-GAAP), compared to $88.2 million, or $1.21 per diluted share, for the same period in fiscal 2011.

At the company's one-year-old Canadian operations, second quarter results included: a 175% increase in net loss to $3.3 million, or $0.05 per diluted share (non-GAAP), compared to a net loss of $1.2 million, or $0.02 per diluted share (non-GAAP) for the same period of fiscal 2011; and a 10.2% decline in net sales to $35.0 million from the last year $39.0 million.

Looking to improve its business, Big Lots has implemented three initiatives/tests for the back half of this year and into 2013 that it believes will help the retailer make a turn around, Fishman said. They are:

--The testing of coolers and freezers in a group of select stores in five markets;
--The roll-out of a new loyalty program in several markets - including the acceptance of government food stamps;
--The testing of a new total store remodel effort.

Big Lots offered its 2012 outlook for both its U.S. and Canadian operations.

The company has updated is fiscal 2012 annual guidance for adjusted consolidated income from continuing operations to $2.80 to $2.95 per diluted share (non-GAAP) versus income from continuing operations of $2.99 per diluted share for fiscal 2011

It now estimates adjusted income from U.S. operations will be in the range of $3.05 to $3.15 per diluted share (non-GAAP), compared to prior guidance of $3.50 to $3.60 per diluted share (non-GAAP). This guidance assumes a U.S. comparable store sales decline in the low single digit range and a total U.S. sales increase in the range of 3% to 4%.

In Canada, sales are expected to be in the range of $152 million to $158 million for fiscal 2012 resulting in an operating loss in the range of $13 million to $15 million, or $0.22 to $0.26 per diluted share (non-GAAP). This compares to prior guidance of sales in the range of $142 million to $152 million for fiscal 2012 resulting in an operating loss in the range of $14 million to $16 million, or $0.23 to $0.26 per diluted share (non-GAAP).

 

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