Big Lots Expanding As Economy Sends Shoppers To Discounters

Big Lots Inc. (BIG) is benefitting from its position as a well-capitalized closeout retailer and is planning new store openings and better merchandising to burnish its image.

The retailer plans to reap the benefits from the pain that many of its peers are suffering by opening in locations that are long-vacant or cutting better deals now that rents have fallen, taking on inventory at lower costs and using capital to improve the rummage-sale image that its stores often convey.

"We have taken some heat over the years about our stores and what they look like," said Chief Executive Steven Fishman during a conference call with analysts after the company posted fourth-quarter results.

Investors like the strategy and have recently lifted shares $2.36, or 16%, to $16.88

With a new leadership team in place for its stores, Big Lots plans to improve consistency of merchandise and customer service standards, Fishman said. "I expect to see fewer and fewer stores that I don't like; the level of accountability will be very high on these initiatives."

Marketing efforts and in-store presentations will be more focused on categories that customers are interested in, like consumables and electronics, Fishman said.

The company also plans to open 45 stores this year and close about 40, the first time it has had net openings since 2004 and more openings than in the last three years combined.

"We hadn't believed that real estate was priced appropriately and that space would eventually become available for us to grow profitably," said Charles Haubiel II, executive vice president of legal and real estate. "That is where we are today."

Openings will be throughout country, but the largest concentration of new stores will be focused on more coastal areas, including Florida, and in the West, primarily California, Oregon and Washington.

"Historically these markets have been some of the most difficult areas to find stories in our price range," Haubiel said. "This just further emphasizes the real estate market change in the past six to 12 months."

Big Lots is "starting to execute on merchandise" and benefitting from better prices from vendors that are stuck with inventory other retailers can't move, said Stacey Widlitz, retail analyst at Pali Research.

CEO Fishman said Big Lots is really coming into its own as a powerhouse retailer.

"We've built a solid foundation for the company and are well-positioned to weather the storm in fiscal 2009," Fishman said. "And with the strategies and initiatives we will be focused on over the long-term, we will be better positioned to benefit when the economy just starts to see some improvement."

The statement came after Big Lots posted fiscal fourth-quarter net income that fell 14% on a loss from discontinued operations and a slide in revenue, but the closeout retailer projected earnings for the new fiscal year above analysts' estimates.

Big Lots sees earnings for the new fiscal year of $1.75 to $1.90 a share on a same-store sales decline of as much as 2%. Analysts polled by Thomson Reuters expected earnings of $1.74 a share.

For the first quarter, the company expects earnings of 34 cents to 40 cents as same-store sales fall 1% to 3%. Analysts expected 35 cents.

Discounters have been seeing fewer impacts from consumer-spending cutbacks, because shoppers looking to save money trade down to discount stores for a good deal.

The fiscal fourth quarter typically generates more than half of Big Lots' annual earnings because of holiday sales.

For the period ended Jan. 31, Big Lots posted net income of $78.8 million, or 96 cents a share, down from $92 million, or $1.04 a share, a year earlier. The latest results included a $3 million loss from discontinued operations, while last year's included a $6.4 million gain from discontinued operations. The company in December lowered its expected earnings of 90 cents to 99 cents.

The company reported last month that revenue decreased 3.4% to $1.35 billion, while sales at stores open at least two years at the beginning of the fiscal year fell 3.2%, in line with its December estimate.

Big Lots - which helps manufacturers clear their warehouses of discontinued, overproduced and otherwise unwanted goods - said gross margin rose to 40.4% from 39.7% on higher prices and lower freight costs.

Average store inventories were flat from the prior year, while total inventory fell 1.4%.

-By Karen Talley, Dow Jones Newswires; 201-938-5106; [e-mail]

(Kerry Grace contributed to this report.)