Big Lots, Inc. (BIG)

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Big Lots (BIG)

Q2 2011 Earnings Call

August 25, 2011 8:00 am ET

Executives

Joe Cooper - Chief Financial officer, Executive Vice President, Principal Accounting officer, Treasurer, Interim Treasurer and President of Big Lots Canada

Charles Haubiel - Executive Vice President of Legal & Real Estate, General Counsel, Corporate Secretary and Member of Executive Committee

Timothy Johnson - Senior Vice President of Finance and Vice President of Strategic Planning & Investor Relations

Steven Fishman - Chairman, Chief Executive Officer and President

Analysts

David Mann - Johnson Rice & Company, L.L.C.

Daniel Wewer - Raymond James & Associates, Inc.

Meredith Adler - Barclays Capital

Mark Mandel - ThinkEquity LLC

Peter Keith

John Zolidis - Buckingham Research Group, Inc.

Anthony Chukumba - BB&T Capital Markets

Joseph Feldman - Telsey Advisory Group LLC

Jeffrey Stein - Ticonderoga Securities LLC

Laura Champine - Cowen and Company, LLC

Presentation

Operator

Ladies and gentlemen, welcome to the Big Lots Second Quarter 2011 Teleconference. This call is being recorded. [Operator Instructions] At this time, I'd like to introduce today's first speaker, Senior Vice President of Finance, Tim Johnson. Please go ahead.

Timothy Johnson

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

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 provision as stated in our press release and our SEC filings, and actual results can differ materially from those described during our forward-looking statements.

As many of you know, this is our first communication of financial results containing our recently acquired Canadian business. In today's press release, we have provided summary levels segment reporting to facilitate a better understanding of these results. Our consolidated financials include results of our Canadian business since acquisition on July 19. We do not anticipate providing pro forma or historical information as it is not required and in our view, is not indicative of our business going forward.

We will be speaking in detail to our results from U.S. operations and Joe will provide commentary on our plans and expectations for our Canadian business. All of our comments this morning are focused on continuing operations, as any discontinued operations activity is not material to overall results. With that, I'll turn it over to Steve.

Steven Fishman

Thanks, T.J., and good morning, everyone. From a top line perspective, I was encouraged to see our business trends improve as the second quarter progressed. After a tough month in May when comps were down in mid-singles, our sales trends improved as weather improved and the combined period of June and July were relatively flat. The level of improvement in June and July was apparent in most major categories, particularly in seasonal, Consumables, Furniture and Home.

From a merchandise perspective, Consumables' trends accelerated from Q1 to Q2 and comps were up in the mid-single digits. We placed a tremendous amount of effort and focus on this category and the results over the last 6 months demonstrate how quickly our trend can change. Our assortments have become broader to offer the customer more selection at extreme value and savings.

From an execution standpoint, we know the marketing and presentation of the product in the store has improved. And in Q3, you will see new initiatives such as our fresh find captive label, expansion and more prevalent signage of extreme value compared to pricing. We believe these efforts will help us to maintain the trends we are seeing in Consumables.

Seasonal merchandise comps finished up mid-single digits as well. When the temperature started to rise in June and July so did our comps, as customers had a need and did respond favorably to our promotional strategy. We're confident this category drives customer traffic and helps provide a lift to other categories in our stores as well. Seasonal's a very clear differentiator in our strategy and I feel bullish about our plans for fall, particularly in the holiday season in Q4.

Furniture comps were down mid-singles, up against double-digit positive comps last year. In this category, we were up against some unique closeout activity last year, namely the Galleria liquidation and the Cape furniture deal. Comps accelerated as the quarter went along and the last year deals were no longer a factor and over the last few weeks, comps have been relatively flat to slightly positive. We've strategized to grow this business in the back half of the year on how high is high testing results from last year. I'm comfortable with our position and continue to believe that Furniture is one of our biggest growth categories over the next several quarters and years.

Our Home business comped down against a double-digit positive comp last year and also experienced improving trends in Q2. I told you on the last call that Doug and his team were strategically making changes for the fall and I believe we're already starting to see some of the benefits of their work. It's early, but we absolutely believe our Home business and the assortments will improve over the next several quarters.

From an inventory standpoint, I'm comfortable with our overall levels and feel confident that the growth is in the right areas. Consumables, which has been strong; Home, where we're funding new ideas and in Electronics where some deals helped performance of our early August adds. Inventory levels and the balance of our categories are down to last year and appropriately so. Overall, the content and quality of the inventory is pretty good in most areas, but there are pockets where I think you'll see us take some markdowns to clear goods because we have better ideas coming. But that's our business; we have to stay fresh and changing to the customer. In an environment that's still fragile with the customer who is challenged and concerned, we stayed focused on our business and generated a record second quarter EPS result and we continue to be good stewards of our capital. With the volatility in the market, we were able to opportunistically repurchase over $300 million of stock or 13% of our outstanding shares. We believe this is a good long-term investment and hopefully demonstrates to our shareholders that we're confident in this model and our prospects for the future.

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