• Cecile Corral

Home 'Important' but Lagging at Big Lots

Much like its discount chain competitors, Big Lots Inc. is turning to food and other consumables to lift its performance this new fiscal year as the retailer gears up for an expected challenging first quarter.

Yearend and fourth quarter performance of discretionary categories, including home, was "challenged." But home is not under threat, said Steve Fishman, chairman and ceo, during the 1,339-unit closeout chain's fourth quarter and yearend earnings call today.

It's true home is the culprit for "lagging the overall top-line sales performance of the rest of the company for a number of years." But Fishman emphasized that Big Lots' home segment has been and remains "a very important part of this company's business from a gross profit dollar standpoint."

Storewide, those gross profit dollars came in relatively briskly in fiscal 2008, with net income of $151.5 million — off 4.4% year-to-year — but earnings of $1.85 per diluted share, up 19.4%.

Quarterly earnings fell 14.3% to $78.8 million, or 96 cents EPS, down 7.7%.

Sales of $1.37 billion in the quarter slipped 3.2%; comps also fell 3.2%.

Full year sales were off 0.2% to $4.64 billion.

Looking ahead, Big Lots projected 2009 comps flat to down 2%, with income from continuing operations of $1.75-$1.90 EPS (vs. $1.89 in 2008).

While Big Lots is admittedly planning its first-quarter results to be "down 1% to 3%, which acknowledges that there will be challenges," Fishman said, the silver lining to that is that home goods at Big Lots have started to "see some life" early into the first quarter.

He continued, "Although we're still early in the quarter, we've been encouraged to date with changes in the sales trends of certain larger categories, particularly in the home and furniture areas ... and toys, and those do come in with a little better margin."

Still, consumables are the focal point for the rest of the year. Based on shoppers' reactions to Big Lots' food and consumable offerings, the chain is planning to expand the department, revamp it and grow its product assortment in 2009.

"Our customers tell us they love what we offer [in the consumables category], but they'd be encouraged to buy a little bit more if we freshened up our stores," he said. "So were investing capital to maximize that volume."

Fishman said for starters, the retailer has "more, free, open to buy dollars currently in that area than we do in any of the other areas. And we absolutely wouldn't be afraid to grow that business. We are investing in the infrastructure of that business."

Food leads the pack in this department, but also selling well among consumable offerings at Big Lots are health and beauty aids, plastics and chemicals. In total, consumables make up about 30% of Big Lots' total business.

Big Lots' new real estate strategy calls for the opening of 45 new stores — representing more new openings than the chain has had in the past three years combined. The new sites will be located throughout the country, but with a concentration on coastal areas, including in the Northeast, the Carolinas, Florida, California, Oregon and Washington.

"We chose these markets specifically because historically these have some of the more difficult areas to find store leases in our price range," he said.

However, at the same time, Big Lots estimates it will close about 40 units this year, too. Roughly 260 Big Lots stores are up for lease renewal in 2009.

"Some of the closings are likely to be stores that are underperforming, and quite frankly we are out of options and the landlord may have plans that don't include Big Lots," Fishman said. "The bigger opportunity — and believe me, we do see this as an opportunity — is to close stores that we think we can reposition into a better center or location that allows us to grow share or profitability in a given market."

Big Lots' other real estate initiative for this year is to test a smaller format store of about 20,000 square feet. Already, a Columbus, Ohio-unit is under testing and is showing favorable results.

The aim of this test is "to better understand different store layouts and the impact on sales productivity and ultimately profits of carrying an edited assortment of merchandise," Fishman said.

Big Lots is No. 11 on the HTT Top 50 Retailing Giants list, with 2007 home textiles sales of $425 million.

Big Lots, Inc. and Subsidiaries

Qtr. 1/31 (millions) 2009 2008 %change
Sales $1,366.9 $1,412.4 (3.2)%
Oper. Income (EBIT) 133.2 137.9 (3.4)
Net income 78.8 92.0 (14.3)
Per share (diluted) 0.96 1.04 (7.7)
Average gross profit 40.4% 39.7% --
SG&A expenses 29.2% 28.3% --
Sales $4,645.3 $4,656.3 (0.2)%
Oper. Income (EBIT) 254.9 236.5 7.7
Net income 151.5 158.5 (4.4)
Per share (diluted) 1.85 1.55 19.4
Average gross profit 40.0% 39.5% --
SG&A expenses 32.8% 32.5% --

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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