Big Lots, Inc. (BIG)

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The Company manages its business on the basis of one segment: broadline closeout retailing. Its wholesale operations are conducted through Big Lots Wholesale, Consolidated International, and Wisconsin Toy, with online sales.

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Avatar NetscribeRetail (42.33) Submitted: 1/12/07 12:43 AM : Start Price: $25.47 BIG Score: -3.24

Big Lots engages in the retail of closeout merchandise in the US purchasing excess merchandise directly from manufacturers that generally result from production overruns, packaging changes, discontinued products or returns. The company deals in four segments namely home, consumables, seasonal and toys and others, which primarily includes electronic tools and small appliances. Big Lots currently operate 1403 stores across 47 states in the US.

Housing market is expected to decline in 2007, which would discourage furniture spending. This could harm the home segment, which contributes about 32% of the revenues. This could also hamper their overall margins as home segment carries higher margins than other segments. Operating expenses are not getting leveraged over a long period of time, though there has been some improvement in the third quarter. Big Lots derives good percentage of revenues from California and Florida and economic forecasts of these states arouse skepticism as housing slowdown concerns are looming over its head.

The third quarter performance of the company has been moderate with about 5.8% rise in top-line powered by mid-single same-store sales growth in home and consumables. Seasonal and toys category contributing 15% to the top-line has also struggled in past several quarters due to the competitive market place. The company’s price to earnings ratio is much higher than the industry and the share price is trading near its 52-week high, suggests that the recent results have been discounted. Additionally, revenue growth rate of the company has been declining over the past several years and there are no strong initiatives to drive revenues in future. Also customer transactions are declining over the past two years. The pace of store opening has weakened with 38 more stores planned to be closed in 2007. Hence, looking ahead, Big Lots does not seem to be a good buy.

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Avatar NetscribeRetail (42.33) Submitted: 6/05/07 4:39 AM

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One should not expect big things from Big Lots albeit marginal rise in the first quarter 2007 revenues. The outlook for this closeout retailer does not excite considering the economic slowdown in the U.S. The fortunes of the company are tied to the housing market, which is currently experiencing a major slowdown. Company’s home segment that sells furniture and home decors carries higher margins and lately, the company saw a beating in gross margin as consumer shifted their focus to its lower margin offerings. The likely housing woes in the future would hamper the home segment that forms over 31 percent of the sales mix.

Big Lots currently looks in a revamping mode as it has closed 211 stores altogether in fiscal 2005 and 2006 under its “What’s important now” (WIN) strategy. WIN is focused on merchandizing, financial control and marketing strategies and the company is implementing even more improvements in fiscal 2007. Although, the strategy has lowered the operational expenses to a great extent, there are no initiatives in place, which could drive the revenues from any of its segments in the future. Cost cutting measures for Big are plentiful as it has cut its work force in the home segment and exited frozen food business. The recent spurt in the stock price does give a cue about the resulting earning improvements of the company. However, by and large, looking at the unexciting industry dynamics, Big Lots seems to have no upside potential from the current price levels.

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Big Lots, Inc. (BIG)

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