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Soft Home Strong at Big Lots

While home was one of the higher-ticket areas that proved “tougher” in sales performance during the third quarter, closeout retailer Big Lots said the textiles segment has fared much better.

“The domestics part of the business has actually been stronger than the rest of the parts,” said Steve Fishman, chairman and ceo to analysts on the 1,368-unit chain's earnings call. “And although it's not as strong as I'd like it to be, it continues to lead the way. The difficulties have really been in the housewares area and the decorative accessories and the picture frame area.”

The retailer noted in its 10-Q quarterly filing that year-to-date its home department has lagged every other merchandise category — consumables, furniture, hardlines and seasonal — except “other.” In fact, with sales of $558 million through nine months, the home category is the only decliner (down 3.7%) from the same period in 2006, again except “other,” in which sales fell 4.3%.

Conversely, furniture has led the way, with year-to-date sales up 6.4% to $502 million.

Home, accounting for 17.2% of sales, is still the second-largest category, trailing only consumables with $972 million, but furniture is closing the gap.

Furniture benefited in part from Big Lots' completion of its retrofit program during the quarter. This initiative, centered on 70 stores mainly in California, was to “get more merchandise out on the selling floor and better allocate square footage to key categories,” Fishman said.

He continued, “In approximately half of these stores we created enough space to move to a full-size furniture department. We learned a lot about how to best execute the retrofit, and any future activity will hinge on our ability to ensure there's enough space to expand furniture.”

Big Lots will continue to evaluate the sales and profitability of this initiative through the holiday period before making a chainwide decision for next year.

Big Lots reported quarterly net income of $14.3 million, more than seven times its $1.7 million earnings in the year-ago quarter — which had been affected by an after-tax charge of $6.1 million.

Sales were off 1.8% to $1.03 billion, as comps edged down 0.5%.

Operating profit of $22.7 million dwarfed the year-ago period's $2.3 million, in part due to a 160 basis point improvement in expenses.

On the earnings call, and again at an investors conference days later, Big Lots execs said that they do not plan to expand the store count of the chain — indeed the “store count will likely contract,” said svp, cfo Joe Cooper — but Big Lots will take advantage of opportunities as local commercial real estate markets “softens.”

In separate news, New York-based investment firm BlackRock said in a filing with the SEC that it has obtained ownership of 10.23% of the common stock of Big Lots; the filing said BlackRock now holds some 10.4 million shares.

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