Big Lots, Inc. (BIG)

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Big Lots Inc. (BIG)

Q2 2010 Earnings Call

August 24, 2010 8:00 am ET

Executives

Tim Johnson - VP of Strategic Planning and IR

Steve Fishman - Chairman and CEO

Joe Cooper - EVP and CFO

Chuck Haubiel - EVP, Real Estate, Legal and General Counsel

Analysts

Jeff Stein - Soleil Securities

David Mann - Johnson Rice

Dan Wewer - Raymond James

Meredith Adler - Barclays Capital

Joe Feldman - Telsey Advisory Group

Patrick McKeever - MKM Partners

Peter Keith - JMP Securities

Charles Grom - JPMorgan

Mark Mandel - ThinkEquity

Presentation

Operator

Ladies and gentlemen, welcome to the Big Lots second quarter 2010 teleconference. (Operator Instructions)

At this time, I would like to introduce today's first speaker, Vice President of Strategic Planning and Investor Relations, Mr. Tim Johnson.

Tim Johnson

Thanks, Brendan, and thank you everyone for joining us for our second quarter conference call. With me here in Columbus today are Steve Fishman, our Chairman and CEO; Joe Cooper, Executive Vice President and Chief Financial Officer; and Chuck Haubiel, Executive Vice President, Real Estate, Legal and General Counsel.

Before we get started, I'd like to remind you that any forward-looking statements we make on today's call involve risks and uncertainties and are subject to our Safe Harbor provisions, as stated in our press release and our SEC filings, and that actual results can differ materially from those described in our forward-looking statements.

As discussed in this morning's press release, our results include discontinued operations activity. Since we do not view discontinued operations as relevant to ongoing operations of the business, our prepared comments will be based on the results from continuing operations.

With that, I would like to turn it over to Steve.

Steve Fishman

Thanks, T.J., and good morning everyone. We continued to stay focused and execute across the organization during the second quarter, and I'm very proud of what we were able to accomplish as a team.

We recorded our 15th consecutive quarter of record EPS from continuing operations, $0.48 per share, versus last year's record at that time of $0.35. We grew the topline by over 5% with the comps of 3.8% supplemented by net store growth of 24 stores.

Operating profit dollars grew 33% behind the strength of our comp, improvement in gross margin and significant SG&A leverage compared to a year ago. And we were able to repurchase significant amounts of stock in the last 60 days, which we believe is a very good use of shareholder cash and demonstrates the confidence we have in this business and the longer-term potential.

From the sales perspective, our comp of 3.8% for the quarter puts us near the top end of our competitive set and represents very good performance in an environment with the somewhat hesitant consumer.

Across retail, it appeared that consumers were more cautious during the June-July timeframe. However, it was very interesting to see that the discretionary categories and the higher ticket goods seemed to be the most appealing areas of our store during Q2.

In terms of merchandizing, furniture, home and seasonal led the way, and electronics continued to perform up against some very lofty numbers from a year ago. For the third consecutive quarter, furniture comped up double digits with broad-based strength across all classifications: upholstery, RTA, case goods and also the mattresses, which interestingly enough was the strongest business.

On average, furniture represents the highest ticket prices in the store, which suggests our customers are willing to spend where they see extreme value and good-quality product.

Home comped up in the low double digits again in Q2 with improved quality, better price points and a very successful Port 7 home event. I'm very pleased with our merchants in this area have responded to the challenge, and I have every reason to believe that this category has even more upside going forward.

Our seasonal business, primarily lawn and garden and summer, comped up high single digits against multiple years of comp store increases in this all important category. Seasonal is one of the two top reasons customers come to Big Lots, and we delivered on our promise. Again, the highest price points performed the best, further reinforcing for us that with our customers it's not about price, it's about value and they're telling us by ringing the register that they see great value in our seasonal assortments.

And finally, our electronics business continues to be good, comping us mid single digits on top of a comp in the high 30s last year. The chain-wide rollout of our video game software program that occurred last year provided incremental sales in Q2. And the availability of closeout deals like DVDs, digital cameras, printers and even a couple of opportunities with computers and GPS units were part of delivering a good comp in Q2.

Also during the quarter, we made meaningful progress on several other of our key strategic initiatives, ready-for-business and our store refresh program and our rewards loyalty card.

Our ready-for-business initiatives continued to get traction, and we estimate that over 80% of our stores serve a standard that we believe is acceptable at this point. We've created a process where executives and their teams are coordinating unannounced visits to stores across the country to hold ourselves accountable to these new standards. I'm pleased to say that we're seeing noticeable differences in store execution, customer service and merchandize presentation compared to this time a year ago. Again, progress, but this is a multiyear initiative we've taken on in our stores.

In terms of our existing store base, our store refresh program is moving along the schedule. Chuck will update you on the details in a moment. But at a really high level, we're pleased with the execution and early results.

Our store associates and our marketing team are focused on building the rewards program for the future. The number of active rewards members now exceeds 5 million customers and continues to build, and the program is still relatively new. Early on, we're seeing some level of positive comp sales impact in the top 100 or so stores in terms of penetration. However, the overall impact to the company comp in Q2 or on year-to-date is an immaterial number.

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