Big Lots Reports Third Quarter Results

COMPANY UPDATES FOURTH QUARTER AND FULL YEAR GUIDANCE

Dec 03, 2010, 06:00 ET from Big Lots, Inc.

COLUMBUS, Ohio, Dec. 3, 2010 /PRNewswire-FirstCall/ -- Big Lots, Inc. (NYSE: BIG) today reported net income of $17.7 million, or $0.23 per diluted share, and income from continuing operations of $17.7 million, or $0.23 per diluted share, for the third quarter of fiscal 2010 ended October 30, 2010.  This compares to net income of $30.3 million, or $0.37 per diluted share, for the third quarter of fiscal 2009, which included a net gain on sale of real estate of $8.2 million, or $0.10 per diluted share.  Excluding the net gain on sale of real estate, adjusted (non-GAAP) income from continuing operations for the third quarter of fiscal 2009 totaled $22.1 million, or $0.27 per diluted share.  

(Logo:  http://photos.prnewswire.com/prnh/20011026/BIGLOTSLOGO )

For the year to date period ended October 30, 2010, net income was $112.5 million, or $1.41 per dilute share, and income from continuing operations totaled $112.5 million, or $1.41 per diluted share.  This compares to net income of $95.0 million, or $1.15 per diluted share, for the same period of fiscal 2009.  Excluding the gain on real estate recognized in the third quarter of fiscal 2009, adjusted (non-GAAP) income from continuing operations totaled $87.0 million, or $1.05 per diluted share, for the same period of fiscal 2009.  Results include both continuing operations and discontinued operations.  Discontinued operations activity was minimal for both the third quarter and year-to-date results of fiscal 2010 and fiscal 2009 and is discussed later in this release.  

THIRD QUARTER HIGHLIGHTS

  • Income from continuing operations of $0.23 per diluted share versus income from continuing operations (on an adjusted non-GAAP basis) of $0.27 per diluted share last year
  • Comparable stores sales increased 0.7%
  • Opened 28 new stores in third quarter, 27 new stores in early November, and achieved new store opening target of 80 stores for fiscal 2010
  • Invested $108 million to repurchase 3.5 million shares

Continuing Operations

Net sales for the third quarter of fiscal 2010 increased 2.0% to $1,055.8 million, compared to $1,035.3 million for the same period in fiscal 2009.  Comparable store sales for stores open at least two years at the beginning of the fiscal year increased 0.7% for the quarter.  

Operating profit for the third quarter of fiscal 2010 was $26.9 million compared to third quarter of fiscal 2009 operating profit (on an adjusted non-GAAP basis) of $34.6 million.  Gross margin dollars increased year over year in the third quarter as a result of our increase in sales and improvement in the gross margin rate.  Investments made to open new stores, refresh existing stores, and prepare our business for the all-important holiday season along with softer third quarter sales results caused our expenses to grow at a faster rate than sales.  We believe this is isolated to the third quarter as our forecast for the fourth quarter and fiscal 2010 anticipate expense growth at a slower rate than sales.

For the third quarter of fiscal 2010, net interest expense was $0.7 million compared to net interest expense of $0.5 million last year.  The effective income tax rate for the third quarter of fiscal 2010 was 32.3% compared to last year's rate of 35.2% on an adjusted (non-GAAP) basis with the decrease in rate primarily due to associate hiring credits offered in certain jurisdictions.

Inventory and Cash Management

Inventory ended the third quarter of fiscal 2010 at $1,006 million compared to $918 million last year, or an increase of 6% per store when considering stores open at the end of the third quarter, as well as inventory on hand at the end of the quarter related to new stores opened in early November.  The majority of the increase per store is viewed as timing related and was specifically focused on early receipts of import merchandise to avoid potential disruptions due to a limited number of available containers.  We expect to exit the fourth quarter of fiscal 2010 with inventory levels similar or slightly up to last year on a per store basis.    

We ended the third quarter of fiscal 2010 with $51 million of Cash and Cash Equivalents and $129 million of borrowings under our credit facility compared to $46 million of Cash and Cash Equivalents and $1 million of borrowings under our credit facility as of the end of the third quarter of fiscal 2009.  The $128 million increase in borrowings was attributable to $342 million of share repurchase activity during fiscal 2010 along with inventory growth at the end of the third quarter, partially offset by cash generated by operations over the last 12 months.

Share Repurchase Activity

As a reminder, on March 2, 2010, our Board of Directors authorized the repurchase of $400 million of company stock ("March 2010 Repurchase Program").  On March 10, 2010, we utilized $150 million of the authorization to execute an Accelerated Share Repurchase (ASR) transaction which reduced our common shares outstanding by 3.6 million.  The total number of shares repurchased under the ASR will be based upon the volume weighted average price of our stock over a predetermined period and will not be known until that period ends and a final settlement occurs; however, if the contract period would have ended October 30, 2010 (end of third fiscal quarter), the final settlement would have increased by 0.8 million shares bringing the total amount of shares repurchased under the ASR to 4.4 million shares.  The terms of the ASR restrict us from declaring a dividend prior to completion, which is scheduled to be no later than January 26, 2011.  

During the third quarter of fiscal 2010, we invested $108 million to opportunistically repurchase 3.5 million shares at an average price of $31.15, bringing the total number of shares repurchased (excluding ASR) to 6.0 million shares at an average price of $32.16.  On a year to date basis, including the ASR activity, we have repurchased 9.6 million shares, or approximately 12% of the shares outstanding at the beginning of Fiscal 2010.  We have $58 million remaining under our $400 million March 2010 Repurchase Program.  The remaining amount will be utilized to repurchase shares in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors.  Common shares acquired through the repurchase program will be available to meet obligations under equity compensation plans and for general corporate purposes.  The repurchase program will continue until exhausted.

Discontinued Operations

As discussed in our Form 10-K filed with the SEC on March 30, 2010, activity related to KB Toys, our former division, as well as the operating results and costs associated with 130 Big Lots stores closed in January 2006 are classified as discontinued operations.  Net loss from discontinued operations for the third quarter of fiscal 2010 totaled $0.1 million compared to a net income from discontinued operations of $0.1 million for the third quarter of fiscal 2009.  On a year to date basis, the net loss from discontinued operations as of the end of the third quarter of fiscal 2010 totaled $0.1 million compared to a net loss of $0.2 million in the prior year.

2010 OUTLOOK

  • Updates guidance for fourth quarter of fiscal 2010 income from continuing operations to $1.36 to $1.42 per diluted share compared to adjusted (non-GAAP) income from continuing operations of $1.31 per diluted share last year
  • Updates guidance for fiscal 2010 income from continuing operations to $2.75 to $2.81 per diluted share … a 16% to 19% increase compared to adjusted (non-GAAP) income from continuing operations of $2.37 per diluted share last year
  • Updates 2010 guidance for $200 million of Cash Flow (defined as operating activities less investing activities)

Based on third quarter results, recent trends in our business, and share repurchase activity to date, we updated expectations for the balance of the year.  We now anticipate income from continuing operations for the fourth quarter of fiscal 2010 to be in the range of $1.36 to $1.42 per diluted share.  This EPS guidance is based on total sales growth of 4% to 6% and comparable store sales in the range of flat to +2%.  Assuming this level of earnings for the fourth quarter of fiscal 2010, we now anticipate fiscal 2010 income from continuing operations of $2.75 to $2.81 per diluted share and an operating profit rate in the range of 7.1% to 7.3%.  

Conference Call/Webcast

We will host a conference call today at 8:00 a.m. Eastern Time to discuss our financial results for the third quarter and provide commentary on our outlook for fiscal 2010.  We invite you to listen to the webcast of the conference call through the Investor Relations section of our website (www.biglots.com).

If you are unable to join the live webcast, an archive of the call will be available through the Investor Relations section of our website (www.biglots.com) beginning two hours after the call ends and will remain available through midnight on Friday, December 17. A replay of the call will be available beginning December 3 at 12:00 noon (Eastern Time) through December 17 at midnight by dialing: 1.888.203.1112 (United States and Canada) or 1.719.457.0820 (International). The PIN number is 5069847.

Big Lots is the nation's largest broadline closeout retailer.  As of the end of the third quarter of fiscal 2010 (October 30, 2010), we operated 1,389 BIG LOTS stores in 48 states.  Our website is located at www.biglots.com.

Cautionary Statement Concerning Forward-Looking Statements

Certain statements in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and such statements are intended to qualify for the protection of the safe harbor provided by the Act. The words "anticipate," "estimate," "expect," "objective," "goal," "project," "intend," "plan," "believe," "will," "should," "may," "target," "forecast," "guidance," "outlook" and similar expressions generally identify forward-looking statements. Similarly, descriptions of our objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements relate to the expectations of management as to future occurrences and trends, including statements expressing optimism or pessimism about future operating results or events and projected sales, earnings, capital expenditures and business strategy. Forward-looking statements are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Forward-looking statements are and will be based upon management's then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. Although we believe the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of our knowledge, forward-looking statements, by their nature, involve risks, uncertainties and other factors, any one or a combination of which could materially affect our business, financial condition, results of operations or liquidity.

Forward-looking statements that we make herein and in other reports and releases are not guarantees of future performance and actual results may differ materially from those discussed in such forward-looking statements as a result of various factors, including, but not limited to, the current economic and credit crisis, the cost of goods, our inability to successfully execute strategic initiatives, competitive pressures, economic pressures on our customers and us, the availability of brand name closeout merchandise, trade restrictions, freight costs, the risks discussed in the Risk Factors section of our most recent Annual Report on Form 10-K, and other factors discussed from time to time in our other filings with the SEC, including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. This release should be read in conjunction with such filings, and you should consider all of these risks, uncertainties and other factors carefully in evaluating forward-looking statements.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

OCTOBER 30

OCTOBER 31

2010

2009

(Unaudited)

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$50,780

$45,907

Inventories

1,006,385

918,205

Deferred income taxes

57,872

47,433

Other current assets

84,806

80,043

  Total current assets

1,199,843

1,091,588

Property and equipment - net

527,244

497,923

Deferred income taxes

17,340

37,880

Other assets

36,762

27,111

$1,781,189

$1,654,502

LIABILITIES AND SHAREHOLDERS' EQUITY      

Current liabilities:

Accounts payable

$469,896

$423,520

Property, payroll and other taxes

79,717

74,485

Accrued operating expenses

58,841

52,225

Insurance reserves

37,853

40,620

KB bankruptcy lease obligation

3,671

3,680

Accrued salaries and wages

41,097

39,902

Income taxes payable

960

1,191

  Total current liabilities

692,035

635,623

Long-term bank obligations under bank credit facility

128,500

1,000

Deferred rent

42,630

32,299

Insurance reserves

45,779

45,240

Unrecognized tax benefits

18,015

26,430

Other liabilities

24,322

30,946

Shareholders' equity

829,908

882,964

$1,781,189

$1,654,502

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

13 WEEKS ENDED

13 WEEKS ENDED

OCTOBER 30, 2010

OCTOBER 31, 2009

%

%

(Unaudited)

(Unaudited)

Net sales

$1,055,830

100.0

$1,035,269

100.0

Gross margin

428,107

40.5

417,991

40.4

Selling and administrative expenses

381,620

36.1

365,194

35.3

Depreciation expense

19,584

1.9

18,184

1.8

Gain on sale of real estate

0

0.0

(12,964)

(1.3)

Operating profit

26,903

2.5

47,577

4.6

Interest expense

(756)

(0.1)

(507)

(0.0)

Interest and investment income

51

0.0

14

0.0

Income from continuing operations before income taxes

26,198

2.5

47,084

4.5

Income tax expense

8,453

0.8

16,828

1.6

Income from continuing operations

17,745

1.7

30,256

2.9

(Loss) income from discontinued operations, net of tax

  (benefit) expense of ($33) and $48, respectively

(51)

(0.0)

73

0.0

Net income

$17,694

1.7

$30,329

2.9

Earnings per common share - basic (a)

Continuing operations

$0.24

$0.37

Discontinued operations

0.00

0.00

Net income

$0.23

$0.37

Earnings per common share - diluted (a)

Continuing operations

$0.23

$0.37

Discontinued operations

0.00

0.00

Net income

$0.23

$0.37

Weighted average common shares outstanding

Basic

75,481

81,674

Dilutive effect of share-based awards

888

1,059

Diluted

76,369

82,733

(a)

The earnings per share for Continuing Operations, Discontinued Operations and Net Income are separately calculated in accordance with accounting pronouncements; therefore, the sum of earnings per share for Continuing Operations and Discontinued Operations may differ, due to rounding, from the calculated earnings per share of Net Income.

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

39 WEEKS ENDED

39 WEEKS ENDED

OCTOBER 30, 2010

OCTOBER 31, 2009

%

%

(Unaudited)

(Unaudited)

Net sales

$3,433,301

100.0

$3,263,492

100.0

Gross margin

1,392,487

40.6

1,314,554

40.3

Selling and administrative expenses

1,154,774

33.6

1,115,657

34.2

Depreciation expense

57,532

1.7

56,348

1.7

Gain on sale of real estate

0

0.0

(12,964)

(0.4)

Operating profit

180,181

5.2

155,513

4.8

Interest expense

(1,765)

(0.1)

(1,334)

(0.0)

Interest and investment income

571

0.0

39

0.0

Income from continuing operations before income taxes

178,987

5.2

154,218

4.7

Income tax expense

66,465

1.9

59,036

1.8

Income from continuing operations

112,522

3.3

95,182

2.9

Loss from discontinued operations, net of tax

    benefit of $34 and $115, respectively

(53)

(0.0)

(179)

(0.0)

Net income

$112,469

3.3

$95,003

2.9

Earnings per common share - basic (a)

Continuing operations

$1.43

$1.17

Discontinued operations

0.00

0.00

Net income

$1.43

$1.16

Earnings per common share - diluted (a)

Continuing operations

$1.41

$1.15

Discontinued operations

0.00

0.00

Net income

$1.41

$1.15

Weighted average common shares outstanding

Basic

78,627

81,568

Dilutive effect of share-based awards

975

924

Diluted

79,602

82,492

(a)

The earnings per share for Continuing Operations, Discontinued Operations and Net Income are separately calculated in accordance with accounting pronouncements; therefore, the sum of earnings per share for Continuing Operations and Discontinued Operations may differ, due to rounding, from the calculated earnings per share of Net Income.

BIG LOTS, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands, except per share data)

(Unaudited)

The following tables reconcile operating profit, operating profit rate, income tax expense, effective income tax rate, income from continuing operations, net income, diluted earnings per share from continuing operations, and diluted earnings per share for the third quarter of 2009, year-to-date 2009, the fourth quarter of 2009, the full year of fiscal 2009, and fiscal 2010 guidance (GAAP financial measures) to adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share (non-GAAP financial measures).

Third quarter of 2009 - Thirteen weeks ended October 31, 2009

As reported

Adjustment to

exclude gain on

sale of real estate

As Adjusted

(non-GAAP)

Operating profit

$47,577

$(12,964)

$ 34,613

Operating profit rate

4.6%

-1.3%

3.3%

Income tax expense

16,828

(4,801)

12,027

Effective income tax rate

35.7%

-0.5%

35.2%

Income from continuing operations

30,256

(8,163)

22,093

Net income

30,329

(8,163)

22,166

Diluted earnings per share from

  continuing operations

$    0.37

$   (0.10)

$    0.27

Diluted earnings per share  

$    0.37

$   (0.10)

$    0.27

Year-to-Date 2009 - Thirty-nine weeks ended October 31, 2009

As reported

Adjustment to

exclude gain on

sale of real estate

As Adjusted

(non-GAAP)

Operating profit

$155,513

$(12,964)

$142,549

Operating profit rate

4.8%

-0.4%

4.4%

Income tax expense

59,036

(4,801)

54,235

Effective income tax rate

38.3%

0.1%

38.4%

Income from continuing operations

95,182

(8,163)

87,019

Net income

95,003

(8,163)

86,840

Diluted earnings per share from  

  continuing operations

$    1.15

$   (0.10)

$    1.05

Diluted earnings per share

$    1.15

$   (0.10)

$    1.05

52 WEEKS ENDED

13 WEEKS ENDED

JANUARY 29,

2011

JANUARY 30,

2010

JANUARY 29,

2011

JANUARY 30,

2010

(Guidance)

(Actual)

(Guidance)

(Actual)

Diluted earnings per share from  

  continuing operations on a  

  GAAP basis (as reported)

$2.75 - $2.81

$2.44

$1.36 - $1.42

$1.28

Deduct: Gain on sale of real

  estate, net of tax benefit

-

(0.10)

-

-

Add Back: Legal settlement

  agreement, net of tax expense

-

0.03

-

0.03

Diluted earnings per share from  

  continuing operations on an  

  adjusted, non-GAAP basis

$2.75 - $2.81

$2.37

$1.36 - $1.42

$1.31

The adjusted operating profit, adjusted operating profit rate, adjusted income tax expense, adjusted effective income tax rate, adjusted income from continuing operations, adjusted net income, adjusted diluted earnings per share from continuing operations, and adjusted diluted earnings per share are “non-GAAP financial measures” as that term is defined by Rule 101 of Regulation G (17 CFR Part 244) and Item 10 of Regulation S-K (17 CFR Part 229). These non-GAAP financial measures exclude from the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) a pretax gain on the sale of real estate of $12,964 ($8,163, net of tax) and a pretax expense for a legal settlement  agreement of $4,000 ($2,420, net of tax).

Our management believes that the disclosure of these non-GAAP financial measures provides useful information to investors because the non-GAAP financial measures present an alternative and appropriate method for measuring our operating performance, excluding certain items included in the most directly comparable GAAP financial measures.  Our management uses these non-GAAP financial measures, along with the most directly comparable GAAP financial measures, in evaluating our operating performance.

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

13 WEEKS ENDED

13 WEEKS ENDED

October 30, 2010

October 31, 2009

(Unaudited)

(Unaudited)

 Net cash used in operating activities

($101,456)

($31,262)

 Net cash used in investing activities

(40,811)

(22,483)

 Net cash provided by financing activities

22,336

1,377

Decrease in cash and cash equivalents

(119,931)

(52,368)

Cash and cash equivalents:

 Beginning of period

170,711

98,275

 End of period

$50,780

$45,907

BIG LOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

39 WEEKS ENDED

39 WEEKS ENDED

October 30, 2010

October 31, 2009

(Unaudited)

(Unaudited)

 Net cash provided by operating activities

$36,216

$139,938

 Net cash used in investing activities

(91,114)

(61,140)

 Net cash used in financing activities

(178,055)

(67,664)

(Decrease) increase in cash and cash equivalents

(232,953)

11,134

Cash and cash equivalents:

 Beginning of period

283,733

34,773

 End of period

$50,780

$45,907

SOURCE Big Lots, Inc.



RELATED LINKS

http://www.biglots.com