Highlights From BIG's Q2 Conference Call: Generated EPS Growth Year-Over-Year, Guides In-line for FY10

August 25, 2009 11:34 AM EDT

Big Lots Inc. (NYSE: BIG) reports Q2 adj-EPS of $0.35, 5 cents better than the analyst estimate of $0.30. Revenue for the quarter was $1.09 billion, versus the consensus of $1.08 billion. Investors like the results and guidance, shares are up 8% today.

Highlights From BIG's Q2 Conference Call:

• Sees Q3 EPS of $0.14-$0.19, versus the consensus of $0.16. Sees same store sales flat to down 2%.
  
• Sees Q4 EPS of $0.99-$1.04. Sees comps unchanged to slightly up.
  
• Sees FY10 EPS of $1.92-$2.02, versus the consensus of $1.93.
  
• (CEO) Our EPS of $0.35 for the quarter was up 9% to last year and likely will put us in good company with a small group of retailers that were able to generate EPS growth year-over-year.
  
• From a merchandise perspective, our inventories remain under control and finished the quarter down 4% per store compared to last year.
  
• Our margin dollars were relatively flat year-over-year even though our sales were off a couple of points.
  
• From a sales perspective seasonal, hardlines and consumables led the way. Hardlines produced below single digit comp in the quarter as well.
  
• Our electronics business in particular was up significantly to last year.
  
• Comps in our consumables business were flat against the positive low double-digit comp last year.
  
• After a pretty decent Q1, which is the biggest quarter of the year for furniture this business was more challenged in Q2.
  
• Our home results remain below last year.
  
• (CFO) Sales for Q2 were $1.087 billion or 1.7% decrease compared to 1.105 billion for Q2 of last year.
  
• Comparable store sales declined 2.4%.
  
• From a trend stand point, May and June were the most challenged months and were below the comp for the quarter. Moving on to July, sales trends improved as we delivered the best comp month of the quarter although still negative.
  
• Our Q2 operating profit rate increased 50 basis points to 4.4% of sales and operating profit dollars increased 4.2 million or 10% despite the lower sales.
  
• Our Q2 gross margin rate of 40.0% was 70 basis points above last year's rate of 39.3.
  
• We continue to experience significant leverage from our distribution and transportation initiatives.
  
• Our tax rate for Q2 of fiscal 2009 was 39.3% compared to last year's rate of 38.3, which benefited from favorable state income tax settlement activity.
  
• Turning to the balance sheet, inventory ended the second quarter of fiscal 2009 at 668 million compared to 698 million last year.
  
• Cash flow which we define as cash provided by operating activities less cash used in investing activities was $48 million for the second quarter of fiscal 2009, which represents a $40 million increase compared to last year. This is directly attributable to lower inventory levels, better AT leverage and lower CapEx during Q2 this year.
  
• We ended the quarter with no borrowings under our credit facility and 56 million of cash invested in money market securities compared to borrowings under our credit facility of 148 million last year.
  
• Year-to-date, we've now opened 19 stores compared to five stores at this time last year. At this point in time, we expect to open approximately 50 stores this year compared to our original plan of 45.
  
• Based on the results of July and early August, we expect Q3 comp sales in the range of flat to down 2%. This guidance assumes that August will be the most challenging month of the quarter for several reasons. First, last year's stimulus effect appears to have continued through early August, however the impact seems to be winding down. Also back-to-school shopping by most accounts and NRF survey's is starting slow as customers continue to shop later and later each year.
  
• As we move into September and October, we expect to experience more historical build rates in the business not the unprecedented deceleration across retail experience last year.
  
• We expect the consumables and hardlines will continue to be leading sales categories in Q3 and the disparity could accelerate from what we experience in Q2.
  
• As a result of our increased earnings guidance for the year, improved inventory flow and our additional investments in CapEx I just mentioned, we now expect to generate approximately 155 million of cash flow compared to prior guidance of 145 million and last year of 123 million.
  
• (CEO) In home, we're setting new programs in towels, sheets and rugs in Q3 which will show the higher quality and better value.
  
• Our Food Refresh program is on track to being completed by the end of Q3.
  
• And finally in toys, we've made some pretty noticeable shifts to more branded products and the customers responded.
  
• (Q&A) Question on your seasonal program for the back half of the year, I know that's a big program for you for Q4. The industry had a real tough time in that category last year. I'm wondering how you're planning that from a merchandising standpoint. Are you planning that category down or just from an inventory dollar commitment standpoint? (A) We actually Jeff, it's just slightly up and slightly above where we're planning it. And we think we deserve some businesses back from last year we were off slightly, last year as everybody was not near what the rest of the industry was, but we think we still have few job sites, and I talked about it briefly. The tree business is just been really good for us, and we think we have an opportunity to grow that. There is a lot of new and exciting things going on in the light business and in fact, if you've been in some stores, we have a very, very early set up for back-to-school and some of it revolves around some rope lighting and LED lighting that's new and different, that is going to be part of the Christmas strategy that we've had some early success sales on, so we're really excited about that. And frankly, from our point of view, the consumer can only go so long without wanting to get back and decorate their home. So, we're well encouraged about what we think the upside opportunity, we certainly have an upside better than what we have planned to from an inventory perspective. So we have not plan that inventory, down.
  
• On the furniture category, can you just tell a little deeper was that an overall weakness or a weakness in sort of the general credit card [ph] versus other programs, and anything you're going to do differently to try and pick that business backup? (A)We experienced - honestly David, we experienced a slowdown in the most of the major classifications, although the upholstery business continues to perform better than the case goods business, and the mattress business really slowed in the second quarter. If you was a student of the furniture business, I think you'll see that the mattress business nationwide has been in a depression. We haven't experienced near the drops in our business that the
  industry has, but it's slowed and that's been a good business for us. Dining and chairs continue to do okay. And there is some new stuff on the floor upholstery that seems to be really working well particularly this section of business and we're trying to chase that business as fast as we possibly can. So there will be some aggressive posturing and furniture in the third quarter I can promise you. I won't say more than that.

Big Lots, Inc., through its subsidiaries, operates as a broadline closeout retailer in the United States.

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