This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Big Lots Inc. (BIG: chart) on March 5, 2008.

Chairman and CEO: Steve Fishman
Senior Vice President and Chief Financial Officer: Joe Cooper
Senior Vice President, Legal & Real Estate and General Council: Chuck Haubiel
Vice President of Strategic Planning and Investor Relations: Tim Johnson

Key Investors Issues

- The non-GAAP EPS rose to 93 cents from 83 cents in the prior year.
- Quarterly revenue dropped from $1.54 billion in previous year to $1.41 billion.
- In Q4, the firm repurchased 5.8 million shares at a total cost of $118 million.
- For Q1, Big Lots projects EPS of 30 cents to 35 cents, on same store sales growth of 1% to 2%.

Fourth Quarter Fiscal 2007 Financial Highlights

For the fourth quarter, the firm reported income from continuing operations on a non-GAAP basis of $82.5 million or 93 cents per share compared to $91.6 million or 83 cents per diluted share a year ago.

Last year’s results included the impact of the extra week in the retail calendar, which the firm estimated to be approximately 5 cents per diluted share. The firm also experienced about a 4 cents benefit in the fourth quarter fiscal 2006 from a lower tax rate. When you look deeper the 93 cents, this year was up against a more normalized 74 cents last year, up over 25% year over year.

The Q4 result of 93 cents per share was above the high end of the firm’s guidance which called for earnings of 81 cents to 86 cents per share. The favorability resulted from first approximately 4 cents of the beat was a result of higher share repurchase activity. During Q4, the firm invested $112 million to repurchase company stock under its new $150 million share repurchase program. The guidance, as stated on November 30, assumed no activity on the $150 million program. Additionally, the tax rate at 36.8% was better than guided and helped EPS by about 2 cents. Also, the firm was able to generate better than expected SG&A leverage on a slightly negative comp.

In the quarter, the firm reported income from discontinued operations of $6.4 million compared to $12.7 million in the prior year.

The income from discontinued operations for the fourth quarter fiscal 2007 was principally comprised of $5.3 million net of tax due to the release of KB bankruptcy related indemnification reserves and a KB bankrupt settlement of $1.1 million, net of tax. The items excluded from continuing operations in the supplemental non-GAAP disclosures represent net income of $3.1 million or 4 cents per diluted share for the fourth quarter fiscal 2007 and net income of $6.1 million or 6 cents per diluted share for fiscal 2007. These items consist of a $3.1 million net of tax for KB bankruptcy trust settlement proceeds received during Q4 and hurricane insurance proceeds of $3 million net of tax related to claims filed during fiscal 2005 principally received in the first quarter of this fiscal year 2007.

Sales for the 13 week fourth quarter were $1.412 billion compared to $1.545 billion for the 14 week fourth quarter last year.

Comparable store sales decreased 0.6% against a 4.9% comp increase last year.

- From a category standpoint, consumables was best performer, with comps up in the mid single digits and high single digits. The firm’s merchants continue to get great branded deals that offer tremendous value to the customer. Seasonal comps were up in the mid single digits.
- After a slow start in November, the Trim a Tree business was strong in December and finished the quarter close to its original plan. This is the second year in a row of good troop business in Trim a Tree.
- After nearly three years of strong mid single to low double digit comps, the furniture business slowed a bit in Q4. There were similar promotional activity in assortments look good in the store, the good news is that in February and in early March, the firm’s furniture business has rebounded strong with the newness flowing. Throughout the balance of the Spring season, the firm is hopeful that its Q4 softness will prove to be an isolated event.
- Toys was a challenge in Q4 and given the fact that the department is between 10% to 15% of the holiday business, the firm had to work hard to move inventory and search for opportunities in other categories to offset a disappointing negative comp in this department.
- The home business remained soft and the firm is working hard to correct the situation and have made changes in both product and people to try to get this category back into positive territory.
- Hard lines was up against some tough numbers from a year ago. Electronics in particular experienced a lower supply of big ticket close outs, particularly televisions and in the near term, the firm does not see this changing.

- From a regional standpoint, the Central region continued to post the best comps and the Southeast namely Florida continues to trail the company average, which is consistent with what most of retail was seeing.

The operating profit rate was 9.4% of sales compared to 8.9% of sales last year.

This 50 basis point expansion in the operating profit rate was driven by significant SG&A leverage partially offset by a decline in gross margin rate. Operating profit dollars were $132.7 million for the 13 week fourth quarter of 2007 versus $137 million for the 14 week fourth quarter last year. Again you need to consider there was an extra week last year that generated 5 cents of incremental EPS or about $10 million of incremental operating profit. Absent the extra week, operating profit dollars increased by approximately 5% for the quarter.

The fourth quarter SG&A rate of 30.3% was approximately 130 basis points lower than last year.

Leverage for the quarter was achieved primarily through distribution and transportation efficiencies lower insurance costs and lower utilities, depreciation and bonus expense.

The fourth quarter gross margin rate of 39.7% was 80 basis points lower than last years rate of 40.5%.

The decline was principally due to lower sales and certain higher margin categories resulting in more promotional mark downs than originally planned, particularly in toys and home. To a lesser extent, the firm experienced a slightly higher shrink rate this year. The shrink rate at approximately 2% is up slightly from last year but remains a reasonable number for the firm’s business. In fact, the firm’s unit shrink was flat year over year so that the shrink increase was AUR driven.