Big Miss for Big Lots

The closeout retailer's outlook also falls short of estimates, sending shares tumbling.
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Big Lots

(BLI)

disappointed Wall Street Wednesday with fourth-quarter profits that fell well short of expectations -- even after accounting for the retailer's recent mass of store closings.

The off-price, closeout retailer reported fourth-quarter earnings of $14.7 million, or 13 cents a share, for the quarter, down from the $57.2 million, or 51 cents a share, it recorded for the year-earlier period.

Excluding charges resulting from store closings, earnings from continuing operations fell to $37.7 million, or 33 cents a share, from last year's $56.7 million, or 50 cents a share. On that basis, analysts were expecting earnings of 43 cents a share, according to Thomson First Call.

Shares of Big Lots recently were down $1.19, or 8.5%, to $12.85.

The Columbus, Ohio-based discounter has recently been cast by some observers as a value play after it conceded cracks in its strategy last fall and unveiled plans for an aggressive restructuring. After some wild swings in its stock price last year that, in the end, left shareholders about even for the year, the shares were up about 17% for 2006 before this latest stumble.

In October, Big Lots said it would close 126 stores that were producing operating losses. Those closings were in addition to the 40 store-closings it already had planned for 2005 (the company typically closes 30 to 40 stores every year). Its annual results include a charge of $25.8 million, or 23 cents a share, for discontinued operations related to the store closings. At the end of the fiscal year, the company had 1,401 namesake stores.

For the entire fiscal year ended Jan. 28, the retailer reported a loss of $10.1 million, or 9 cents a share, compared with net income of $23.8 million, or 21 cents a share for 2004. Excluding charges, it earned $15.7 million, or 14 cents a share, in 2005, down from $31.4 million, or 27 cents a share, a year earlier. Analysts had an average estimate for full-year earnings of 22 cents a share, before items.

Big Lots projects earnings for the current fiscal year of 38 to 43 cents a share. That forecast falls short of Wall Street's estimate calling for earnings of 48 cents a share. For the first quarter, the company anticipates earnings of 4 cents to 7 cents a share, with sales of $1.075 billion to $1.095 billion. Wall Street targets earnings of 7 cents a share and sales of $1.02 billion.

During the holiday quarter, Big Lots' total sales rose 6.1% to $1.39 billion from $1.31 billion a year earlier. Same-store sales, or sales at stores open for at least two years at the beginning of the period, rose 2.5%, driven mainly by a 5.1% increase in the amount of a customer's average purchase. That was partially offset by a 2.6% decline in total sales transactions.

Big Lots said home and furniture products were its best-performing sales categories. The company said it increased promotions to help boost its top line after a slow sales start in November.

Despite some sales strength, the company's profitability withered as gross margin declined with the higher markdowns. Meanwhile, Big Lots was hit by rising fuel costs, which boosted transportation expenses and the price of certain materials.

Big Lots said it now plans to report sales on a quarterly basis rather than a monthly basis. It also authorized the repurchase of up to $150 million of its shares.

"The size of the repurchase program approximates the company's fiscal 2005 free cash flow and fits well within the company's capital structure," Big Lots said.