Big Lots mulls not-so-small changes to keep on its roll

Changing plans two-thirds of the way into a three-year plan could be a sign of trouble.

Not at Big Lots Inc.

The closeout merchandise retailer expects to reach most of the goals of its strategic plan by the end of 2008, a year earlier than anticipated, and it is starting its planning for the next three years, looking toward a future that could include smaller stores and online sales.

“As I’ve said on a number of occasions: In retail, if you aren’t constantly challenging and reinventing yourself you’ll fall behind your competition or lose all together,” CEO Steve Fishman said Aug. 26 in a phone discussion with analysts who follow the company’s stock.

The Columbus-based company expects to hit its operating profit rate goal of 5.5 percent by the end of the year, Fishman said, one of several goals achieved or surpassed in Big Lots’ strategic plan since it began in 2007.

Tim Johnson, vice president of strategic planning and investor relations for the company, said the executive team formulating the new plan is the same one that developed the current program and many pieces will remain the same, such as the company’s view on real estate and merchandising.

Out with the old

Big Lots’ goals in the current plan were to expand its operating profit, create sustainable share earnings growth and improve cash flow to either reinvest in the business or return to shareholders.

In addition to meeting the operating profit goal, Big Lots surpassed its share earnings in the plan’s first year and expects to do it again this year. The goal for the three-year period was to generate per-share earnings between $1.01 and $1.75, but the company is projecting $1.90 to $2 for 2008.

Big Lots also completed a $600 million share repurchase program in 2007, which was part of the plan. It followed that with a $150 million stock buyback program that wrapped up in February.
Two markers Big Lots is on pace to reach by the end of 2009 are a cumulative cash flow of $550 million to $600 million for the three years, with the total projected to be $415 million by the end of this year. Capital expenditures are expected to be between $160 million and $165 million for 2007 and 2008, close to the three-year goal of between $170 million and $190 million.

Big Lots also has shown same-store sales gains in each year of Fishman’s tenure as chief executive since July 2005, when he replaced Michael Potter. Same-store receipts rose 1.8 percent in 2005, 4.6 percent in 2006 and 2 percent last year.

Patrick McKeever, an analyst with Greenwich, Conn.-based MKM Partners LLC, wrote in an Aug. 27 report that sales and profit margins were better than expected at Big Lots in part because of the company’s Raise the Ring strategy, which is creating higher average sales, and reduced operating expenses from improved efficiencies in payroll, distribution and transportation.

He raised his share earnings forecasts to between $1.89 and $1.97 for this year and to between $2.10 and $2.18 for 2009.

In with the new

Still, Fishman thinks there is room to improve.

“Our team at Big Lots does not believe that we’re anywhere near as productive, as efficient or as profitable as we have the capability of being in the future,” he told analysts.

Big Lots will toy with the size of its stores in a bid to find new business opportunities and meet future goals.

“We want to understand ... if there are opportunities to open more stores in smaller size boxes (and) what are those businesses that we want to be in,” Fishman said.

The initiative is market-driven. Fishman said much of the storefront space on the market or being built by developers for retailers is in the 20,000-square-foot range, but a typical Big Lots store is 25,000 to 30,000 square feet in size.

“How many opportunities were we missing?” Johnson asked, noting that the test and possible rollout of smaller stores would be a slow one.

Fishman said to reduce store size, the chain likely would need to reduce merchandise categories. Those cuts likely would be made individually by stores.

“When 75 to 80 percent of your customers or more come in with nothing in mind to buy, there are classifications that you have to have and there are classification that you just don’t have to have,” he said.

The company has a testing ground for smaller stores. It retrofitted 70 stores in California last year, many of which were 20,000 to 22,000 square feet. Thirty-five of the stores include furniture departments, one of the company’s most-thriving merchandise categories.

But the growth isn’t expected to be linked only to real estate. Big Lots is exploring cyberspace, too.

“I think that there’s an opportunity to create some excitement online with brands and products that don’t necessarily lend themselves to our store environment,” Fishman said of a venture into electronic commerce.

Johnson said the goal is to develop a strategy that differentiates the e-commerce site from Big Lots stores and online competitors.

E-commerce could take the company into merchandise categories it doesn’t stock at its stores, Johnson said. Also, selling over the Web could help when the company acquires product lots that are too small to stock in its stores but would still attract consumers.

Johnson said Big Lots expects to open 20 stores by the end of the year. The chain again will not see a net gain in stores, with between 45 and 50 closings anticipated in 2008, but the number of openings has increased from seven in 2006 to 11 last year to 20 in 2008.

Big Lots runs 1,355 stores.

Fishman said the company’s distribution network could support up to 1,800 stores, but the pace of growth toward that total will depend on the commercial real estate market.

“We’re not in a race to grow the store base,” he said. “We’re focused on profitable store growth and there is a big difference. We’ll only open stores where I can say to shareholders that we can make money.”

Source: The Columbus Dispatch

Big Lots Reports Increased Sales and Improved Operations

The worst of economic times can yield the best of times for value-priced retailers, especially when the retailer has also improved operational efficiencies.

On Tuesday, Big Lots reported increases in net sales, same-store sales and income. In the second quarter, the close-out retailer’s net sales were up 1.9% to $1.105 billion compared to $1.084 billion for the year-ago period. Same-store sales increased 2.8%, which was on top of an impressive 5.2% increase in same-store sales for the same quarter in fiscal 2007. Net income for the most recent quarter was $26 million vs. $23.4 million last year, and year-to-date net income topped $60 million vs. $52 million in the previous year.

Additionally, Big Lots realized a 30% improvement in operating profit for the second quarter: $43.5 million, or 3.9% of sales, vs. $33.4 million, or 3.1% of sales for the year-ago period.
Big Lots attributed the gains to the 2.8% increase in same-store sales, improved margins and expense control resulting primarily from efficiencies in operations at its stores and distribution center.

The company reported significant improvements in inventory management as well, ending the second quarter with a 2% reduction in inventory, $698 million vs. $714 million last year, which resulted largely from a 1% reduction in average store inventory and a 1% reduction in store count.

At the end of the second quarter, Big Lots had 1,355 stores in 47 states, down from 1,375 stores at the close of fiscal 2006. The company’s total revenues in fiscal 2007 were $4.656 billion.

Source: Chain Store Age

Big Lots CEO sees 1,800 stores

New York – Closeout retailer Big Lots, now operating more than 1,350 stores in 47 states, could reach 1,800 stores, said chairman and ceo Steve Fishman, speaking at the Piper Jaffray Consumer Conference here today.

Fishman for more than a year has focused the $4.7 billion retailer on operational issues, while putting real estate expansion on hold. Now – with SG&A costs trending down toward the lowest level in company history – he is indicating a sharp new interest, especially as the real estate market is growing more advantageous. He told analysts, “The rent market needed to cool down before we were going to be able to open a significant number of stores profitably.”

“We believe we are in the perfect position to capitalize on real estate opportunities,” said Fishman. “We’ve streamlined our business – and are ready to grow. We’re highly motivated to open more stores at the right price.”

Fishman said the current Big Lots distribution infrastructure can support one-third more stores. He emphasized that better management of distribution centers and transport has helped push down overhead costs.

At Big Lots, SG&A as a percentage of sales has dropped from 38.5% in 2005 to 34.7% in 2007, and is projected at 34.4% this year.With a record year under its belt in 2007 and a good start with a 75% upswing in quarterly profit for 1Q 08, Big Lots may be poised for growth, and home can be part of that. Home textiles and home décor combine for 15% of volume at Big Lots – and furniture is another 15%. In home, dedicated agents overseas are the key resource, Fishman noted.

Source: Home Textiles Today

Big Lots Poised for Big Growth

Big Lots, Inc. (BIG) is growing operating profits and generating ample cash flow despite a difficult retailing environment. Its recently reported fourth quarter produced a nice earnings surprise. Over the past four quarters, it has posted an average surprise of 39.7%. All four covering analysts have lifted their numbers for this year over the past month.

Big Lots, through its subsidiaries, operates as a broad line closeout retailer in the United States. The company offers its products under four merchandising categories: consumables, home, seasonal and toys, and other.

The consumables category includes food, health and beauty, plastics, paper, and pet departments. The home category includes domestics and home decor departments. Seasonal and toys category includes toys, lawn and garden, trim-a-tree, and various holiday-oriented departments. The other category primarily includes electronics, apparel, home maintenance, small appliances, and tools.

The shares rose a few weeks ago as an analyst said the closeout retailer is poised for growth and initiated coverage with a "Buy" rating. Soleil Securities Group analyst Jeffery Stein said in a note to investors that Big Lots, which specializes in buying closeout items from other retailers and selling them at a discount, has streamlined its business model to grow earnings even in a weak consumer spending environment.

In early March, the company reported fourth quarter net income of $92.0 million, or $1.04 per diluted share, for the 13-week fourth quarter of fiscal 2007. This compares to net income of $104.3 million, or $0.94 per diluted share for the 14-week fourth quarter of fiscal 2006. For the 52-week fiscal 2007 ended February 2, 2008, net income was $158.5 million, or $1.55 per diluted share, compared to net income of $124.0 million, or $1.11 per diluted share, for the 53-week fiscal 2006. Analysts expected $0.83 per share.

BIG estimated fiscal 2008 income from continuing operations will be in the range of $1.70 to $1.80 per diluted share compared to income from continuing operations (on a non-GAAP basis) of $1.41 per diluted share for fiscal 2007. This guidance for EPS growth in the range of 21% to 28% compared to last year is based on an expected increase in comparable store sales of approximately 1% to 2% and continued expense leverage.

Commenting on fiscal year 2007 results, Steve Fishman, Chairman and Chief Executive Officer stated, "Our continued focus on our WIN strategy enabled us to drive record EPS performance at Big Lots in 2007. We expanded our operating profit rate, turned our inventory faster, and generated nearly $250 million of cash flow in what most people have described as a very difficult economic environment."

The company has an awesome history of beating estimates. Over the past four quarters, it has posted an average surprise of 39.7%. All four covering analysts have lifted their numbers for this year over the past month. During that time, current year earnings estimates have risen 14 cents to $1.74 per share. Analysts expect a further increase of 12.5% in earnings growth next year.

Source: SeekingAlpha.com

Costco, BJ's profits jump; Big Lots raises guidance

NEW YORK (MarketWatch) -- Thanks to value-seeking shoppers, Costco Wholesale Corp., the largest U.S. wholesale club, said Wednesday that quarterly profit jumped 31%, boosted by international demand and U.S. sales of gasoline. Smaller rival BJ's Wholesale Club Inc. said that profit exceeded its previous projection.

Costco's net income in the fiscal second quarter climbed to $327.9 million, or 74 cents a share, from $249.5 million or 54 cents a share a year earlier, when it had $53.4 million in nonrecurring charges, the Issaquah, Wash.-based retailer said. Sales in the quarter ended Feb. 17 rose 12% to $17 billion. Profit for Costco matched the average estimate of analysts surveyed by Thomson Financial. Sales exceeded the $16.9 billion in average analysts' estimate, according to Thomson Financial.

Wholesale clubs Costco and BJ's, along with discounters and off-price retailers, have benefited from budget-conscious shoppers buying items in bulk or seeking name-brand items at a discount, posting February sales gains that exceeded Wall Street estimates. They are among the few bright spots in the retail sector as economic worries and lack of must-have fashions have hurt department stores and specialty retailers. See full story.

Shares of BJ's (BJ) and close-out retailer Big Lots (BIG) both jumped while Costco's (COST) dropped slightly after its margin missed the forecast.

"Consumers are looking for opportunities to save money in a challenging macroeconomic environment," said Tom Forte of Telsey Advisory Group. "You are seeing that in Costco, BJ and Big Lots."

Costco

Shares of Costco fell 1% after its margin missed some analysts' estimates. The company said margins benefited from higher food sales and a change in its electronics-returns policy, but came under pressure in the pharmacy department and at its food court, with no changes there to counter rising cheese prices. Gross margin widened by 0.24 percentage points, Chief Financial Officer Richard Galanti said on a conference call. Galanti added that Costco is comfortable with analysts' average estimate of 65 cents for the third quarter, though he said that's at "the high end of a small range." Costco's second-quarter U.S. same-store sales rose 7%, including a 5% increase in the U.S. and a 17% jump internationally. Higher sales of gasoline have been a boon to the retailer, with the average price per gallon surging 29% during the quarter. A lower U.S. dollar against the Canadian currency also helped sales. Consumers can buy gasoline as much as 10 cents a gallon cheaper at Costco compared with others in the local market, according to Forte.

"Eventually if it's only gasoline price and foreign currency benefiting results, we could see a decrease," analyst Jharonne Martis of Thomson Financial said.

California, while hurt by declining housing market, also posted positive same-store sales. Deli, produce and fresh-food sales increased, while discretionary items such as home furnishings and jewelry posted a same-store sales drop, Galanti said. Some analysts also noted that the company has benefited from better availability of brands such as Crocs footwear.

"We in fact are seeing quite a bit more activity from some of the variety of nonfood manufacturers that historically would not sell us directly," Galanti commented on the call.

Costco also said Wednesday that February same-store sales rose 7%, including a 5% increase in the United States. Overseas sales climbed 18%. The company has seen a pickup in sales in the last two weeks of the month. Analysts surveyed by Thomson were expecting sales gain of 6%. Results also outpaced the 0.5% to 1% average gain projected for U.S. retailers, according to the International Council of Shopping Centers.

Excluding the benefit of gas inflation, U.S. sales in February rose 3%.

Same-store sales are a key retail performance metric that excludes sales from newly opened or closed locations. Costco has 534 warehouses, including 391 in the United States and Puerto Rico.

BJ's, Big Lots

Also juiced by higher gasoline sales, BJ's net income soared to $50.2 million, or 80 cents a share, from $11.9 million or 18 cents a share a year earlier, when it had a 40-cent net expense. Results exceeded the company's previous guidance of 70 cents to 74 cents a share.

February same-store sales rose 5.9%, exceeding forecast of a 3.8% gain.

BJ's has brought back its former senior management, closed pharmacy departments, shortened store hours and slowed new-unit growth to bolster results, analysts said.

"They are doing a good job of turning around the business," Forte pointed out. "They really did a good job."

Bit Lots shares surged 21% after the close-out retailer projects 2008 profit of $1.70 to $1.80 a share with comparable store sales expected to increase 1% to 2%. The profit forecast exceeded average analysts' estimate of $1.53 a share, according to Thomson Financial. Big Lots, which has 1,353 Big Lots stores in 47 states, sells name-brand furniture, lawn and garden and home-furnishing products at discount prices.

Fourth-quarter profit fell to $92 million from $104.3 million a year earlier. Big Lots said that it expanded operating profit and turned inventory faster as it lowered expanses and installed new register software in 700 stores.

Source: MarketWatch