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Press release from PR Newswire

Big Lots Reports Third Quarter Results

Friday, December 03, 2010

Big Lots Reports Third Quarter Results06:00 EST Friday, December 03, 2010COMPANY UPDATES FOURTH QUARTER AND FULL YEAR GUIDANCECOLUMBUS, 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 HIGHLIGHTSIncome 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 2010Invested $108 million to repurchase 3.5 million sharesContinuing OperationsNet 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 ManagementInventory 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 ActivityAs 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 OUTLOOKUpdates 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 yearUpdates 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 yearUpdates 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/WebcastWe 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 StatementsCertain 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 SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands)OCTOBER 30OCTOBER 3120102009(Unaudited)(Unaudited)ASSETSCurrent assets:Cash and cash equivalents$50,780$45,907Inventories1,006,385918,205Deferred income taxes57,87247,433Other current assets84,80680,043   Total current assets1,199,8431,091,588Property and equipment - net527,244497,923Deferred income taxes17,34037,880Other assets36,76227,111$1,781,189$1,654,502LIABILITIES AND SHAREHOLDERS' EQUITY      Current liabilities:Accounts payable$469,896$423,520Property, payroll and other taxes79,71774,485Accrued operating expenses58,84152,225Insurance reserves37,85340,620KB bankruptcy lease obligation3,6713,680Accrued salaries and wages41,09739,902Income taxes payable9601,191   Total current liabilities692,035635,623Long-term bank obligations under bank credit facility128,5001,000Deferred rent42,63032,299Insurance reserves45,77945,240Unrecognized tax benefits18,01526,430Other liabilities24,32230,946Shareholders' equity829,908882,964$1,781,189$1,654,502BIG LOTS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)13 WEEKS ENDED13 WEEKS ENDEDOCTOBER 30, 2010OCTOBER 31, 2009%%(Unaudited)(Unaudited)Net sales$1,055,830100.0$1,035,269100.0Gross margin428,10740.5417,99140.4Selling and administrative expenses 381,62036.1365,19435.3Depreciation expense19,5841.918,1841.8Gain on sale of real estate00.0(12,964)(1.3)Operating profit26,9032.547,5774.6Interest expense(756)(0.1)(507)(0.0)Interest and investment income510.0140.0Income from continuing operations before income taxes26,1982.547,0844.5Income tax expense 8,4530.816,8281.6Income from continuing operations17,7451.730,2562.9(Loss) income from discontinued operations, net of tax   (benefit) expense of ($33) and $48, respectively(51)(0.0)730.0Net income $17,6941.7$30,3292.9Earnings per common share - basic (a)Continuing operations$0.24$0.37Discontinued operations0.000.00Net income $0.23$0.37Earnings per common share - diluted (a)Continuing operations$0.23$0.37Discontinued operations0.000.00Net income $0.23$0.37Weighted average common shares outstandingBasic75,48181,674Dilutive effect of share-based awards8881,059Diluted76,36982,733(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 SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)39 WEEKS ENDED39 WEEKS ENDEDOCTOBER 30, 2010OCTOBER 31, 2009%%(Unaudited)(Unaudited)Net sales$3,433,301100.0$3,263,492100.0Gross margin1,392,48740.61,314,55440.3Selling and administrative expenses 1,154,77433.61,115,65734.2Depreciation expense57,5321.756,3481.7Gain on sale of real estate00.0(12,964)(0.4)Operating profit180,1815.2155,5134.8Interest expense(1,765)(0.1)(1,334)(0.0)Interest and investment income5710.0390.0Income from continuing operations before income taxes178,9875.2154,2184.7Income tax expense 66,4651.959,0361.8Income from continuing operations112,5223.395,1822.9Loss from discontinued operations, net of tax     benefit of $34 and $115, respectively(53)(0.0)(179)(0.0)Net income $112,4693.3$95,0032.9Earnings per common share - basic (a)Continuing operations$1.43$1.17Discontinued operations0.000.00Net income $1.43$1.16Earnings per common share - diluted (a)Continuing operations$1.41$1.15Discontinued operations0.000.00Net income $1.41$1.15Weighted average common shares outstandingBasic78,62781,568Dilutive effect of share-based awards975924Diluted79,60282,492(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 SUBSIDIARIESRECONCILIATION 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 reportedAdjustment toexclude gain onsale of real estateAs Adjusted(non-GAAP)Operating profit $47,577$(12,964)$ 34,613Operating profit rate 4.6%-1.3%3.3%Income tax expense 16,828(4,801)12,027Effective income tax rate 35.7%-0.5%35.2%Income from continuing operations 30,256(8,163)22,093Net income 30,329(8,163)22,166Diluted earnings per share from   continuing operations $    0.37$   (0.10)$    0.27Diluted earnings per share  $    0.37$   (0.10)$    0.27Year-to-Date 2009 - Thirty-nine weeks ended October 31, 2009 As reportedAdjustment toexclude gain onsale of real estateAs Adjusted(non-GAAP)Operating profit $155,513$(12,964)$142,549Operating profit rate 4.8%-0.4%4.4%Income tax expense 59,036(4,801)54,235Effective income tax rate 38.3%0.1%38.4%Income from continuing operations 95,182(8,163)87,019Net income 95,003(8,163)86,840Diluted earnings per share from     continuing operations $    1.15$   (0.10)$    1.05Diluted earnings per share $    1.15$   (0.10)$    1.0552 WEEKS ENDED13 WEEKS ENDEDJANUARY 29,2011JANUARY 30,2010JANUARY 29,2011JANUARY 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$1.28Deduct: Gain on sale of real   estate, net of tax benefit -(0.10)--Add Back: Legal settlement   agreement, net of tax expense -0.03-0.03Diluted earnings per share from     continuing operations on an     adjusted, non-GAAP basis $2.75 - $2.81$2.37$1.36 - $1.42$1.31The 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 SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)13 WEEKS ENDED13 WEEKS ENDEDOctober 30, 2010October 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 activities22,3361,377Decrease in cash and cash equivalents(119,931)(52,368)Cash and cash equivalents:  Beginning of period170,71198,275  End of period$50,780$45,907BIG LOTS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)39 WEEKS ENDED39 WEEKS ENDEDOctober 30, 2010October 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)11,134Cash and cash equivalents:  Beginning of period283,73334,773  End of period$50,780$45,907SOURCE Big Lots, Inc.For further information: Timothy A. Johnson, Vice President, Strategic, Planning and Investor Relations, +1-614-278-6622