Big Lots Is The Close-Out King

By Greg Sushinsky | March 09, 2009 AAA

Close-out king Big Lots (NYSE:BIG) reported fourth quarter earnings down slightly as net income was 96 cents a share versus $1.04 cents per share a year ago, or $78 million compared to $92 million the previous year's quarter. Net sales fell to $1.37 billion from $1.41 billion. Net income on continuing operations was $1.00 a share compared to 97cents a share a year earlier or $81.8 million this year's quarter versus $85.6 million last year's same quarter. Despite the slight fall in revenue and net income, the excess inventory seller held up very well compared to retail in general. Both its prospects and the stock market reaction to the news are intriguing.

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Turning Over Shoppers
One of the interesting items in the report was the year's turnover of 3.6-times the inventory by Big Lots, cited as a record for the company. Where many retailers have had trouble even getting shoppers to come in the door, Big Lots is not only getting them in, but out after buying things, known as the all-important conversion in the business. Also, their overall earnings for 2008 were $1.89 per diluted share from continuing operations, as against $1.47 per share the year before, something not many companies in many industries are showing. Even the guidance for 2009, which comes out flat, is still a far brighter picture than most of what you see with many industries, including the crushed retail business today.

The Brighter Discount Picture
While mainstream retailers from department stores like Macy's (NYSE:MCY) to clothing stores like the Gap (NYSE:GPS) are finding customers hard to come by, the discount retailers like Big Lots are doing better, and they're not the only ones. Family Dollar Stores (NYSE:FDO) continue to pull in good numbers, with their estimates for next year suggesting higher net income. While discount club Costco (Nasdaq:COST) had a nasty quarterly earnings report with a 27% decline in net income, it's still hard to look at their wide-ranging successful model, which has developed a tremendously loyal customer base. Their 2009 prospects still appear good overall.. (Also check out Industries That Thrive On Recession.)

Another large warehouse wholesaler, BJ's Wholesale Club, Inc. (NYSE:BJ), has held even in this economy with flat earnings, while smaller discounter 99 Cents Only Stores (NYSE:NDN), had a tougher time. Big Lots sits squarely in that same overall value arena, though, as these other retail discounters, most of which continue to be successful overall, all with slightly different business models, and all are benefitting from the consumer being driven deep toward value.

The Market Likes It... Or Doesn't Hate It
Well-known stock maven Jim Cramer has sung the praises recently of Big Lots, both before and after the latest earnings report. He's not alone. Cramer pointed out how the technical analysts' liked the stock by examining the chart on his Mad Money show on Tuesday, March 3, the eve of the Big Lots' report. Apparently, though, many in the market like Big Lots and the implications of its earnings drive for 2009, as the stock popped nearly 18% ($2.71 per share), up to $17.15 from $14.41 price prior to the report. With the stock blasting off from its 52-week low of $12.62, this is a confluence of fundamentals and technical's coming together at least on one day to reward a company that has acceptable earnings. The stock is worth watching as the earnings direction shows promise.

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