• Cecile Corral

Big Lots Enhancing Home in Second Half

Although Big Lots' home sales remained below last year during the second quarter, the close-out chain expects the business to experience a turnaround as a new and improved product assortment in bath towels, sheets and rugs occupies more shelf space during the second half of 2009.

Steven Fishman, chairman, ceo and president, explained that Big Lots is cautiously optimistic about home's outlook for the rest of the year. The 1,350-unit chain is "confident our assortments will be better in the second half of the year, based on some new programs and new close-out deals that we recently landed."

Later in Big Lots' second quarter earnings webcast presentation late last month, Fishman added, "In home we're setting new programs in towels, sheets, and rugs in Q3, which will show the higher quality and better value I've been talking about , and we have some closeouts featured in upcoming ads we're excited to see how well they'll perform."

Second quarter net income rose 9.2% to $28.4 million, or 34 cents per share, including the impact of discontinued operations. Income from continuing operations climbed 9.6% to $28.6 million, or 35 cents per diluted share.

Sales decreased 1.7% to $1.087 billion, while comps for stores open at least two years at the beginning of the fiscal year fell 2.4%.

Operating profit for the second quarter of fiscal 2009 improved 10% to $47.7 million, or 4.4% of sales, compared to last year's operating profit of $43.5 million, or 3.9% of sales. Big Lots attributed the bump to better gross margins and lower expenses.

"While I'm not thrilled with a negative comp for Q2, I do think we managed through a difficult situation in terms of merchandising," Fishman said. "When you add it all up, our operating profit dollars increased 10% compared to last year. We generated record second-quarter earnings in an environment that was not great, we generated significant cash flow, and our balance sheet remained solid."

For the year-to-date period ended August 1, net income climbed 7% to $64.7 million, or 78 cents per share, including the impact of discontinued operations. Income from continuing operations rose 7% to $64.9 million, or 79 per share.

First half sales fell 1.3% to $2.23 billion.

From a merchandising perspective, Big Lots' second quarter inventories "remained under control," Fishman continued, finishing the quarter down 4% per store to $668 million compared to last year's $698 million.

In sales by category, it was the seasonal, hard-lines and consumables businesses that "led the way," Fishman said.

Comps in the consumables business were flat against a positive low double-digit comp last year.

And furniture proved more challenged in the second quarter. But Big Lots also has plans to adjust its furniture assortments in the second half of this year.

During the second quarter, the upholstery business continued to perform better than the case goods business. "And the mattress business really slowed in the second quarter. I think you'll see that the mattress business nationwide really has been in a depression. We have experienced near the drops in our business that the industry has, but it has slowed," he said.

Dining and chairs continued to "do OK," he continued, "and there is some new stuff on the floor in upholstery that seems to be really working well, particularly the sectional business. We're trying to chase that business as fast as we possibly can."

With that said, Big Lots will be executing "some aggressive posturing in furniture in the third quarter, I can promise you. I won't say more than that."

The company raised its earnings outlook for the third quarter to range between $1.92 to $2.02 per share. It had previously forecast earnings of $1.85 to $1.95 per share. For the fourth quarter, Big Lots said it expects comparable store sales to hit somewhere between flat and slightly up. At this level of comp performance, the retailer said it anticipates operating profit to be flat to slightly up to last year.

"Some of our strategies that we believe are new and different should help positively impact sales trends as we move through Q3 and into the all—important fourth quarter," Fishman said.

These include:

Expanding the square footage allocated to the pet category;Launching a tailgating section for football season;Enhancing fourth-quarter Christmas seasonal offerings, especially lighting, trees, and novelty items.

Cecile CorralCecile Corral | Senior Product Editor, Home & Textiles Today

Cecile B. Corral has been a product editor with Home Textiles Today since late 2000. She covers the area and accent rug, kitchen textiles, table linens, beach towels, decorative bath and decorative pillow categories, as well as some retail subjects.

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