Big Lots, Inc. (BIG)
Q4 2009 Earnings Call Transcript
March 3, 2010 8:00 a.m. ET

Executives

Tim Johnson - Vice President of Strategic Planning and Investor Relations
Steve Fishman - Chairman and Chief Executive Officer
Joe Cooper - Senior Vice President and Chief Financial Officer
Chuck Haubiel - Senior Vice President, Real Estate, Legal and General Counsel

Analysts

David Mann – Johnson Rice
Dan Wewer – Raymond James
Charles Grom – JP Morgan
Jeff Stein – Soleil Securities
Meredith Adler – Barclays Capital
Patrick McKeever – MKM Partners
Laura Champine – Cowen & Company
Ronald Bookbinder – Global Hunter Securities
Anthony Lebiedzinski – Sidoti & Company

Presentation

Operator

Ladies and gentlemen welcome to the Big Lots fourth quarter 2009 teleconference. (Operator Instructions) This call is being recorded. During the session all lines will be muted until the question-and-answer portion of the call. If you need audio assistance please press “*0” and an operator will assist you. At this time, I would like to introduce today’s first speaker, Vice President of Strategic Planning and Investor Relations, Mr. Tim Johnson.

Tim Johnson – Vice President of Strategic Planning and Investor Relations

Thanks Joseph and thank you everyone for joining us for our fourth quarter conference call. With me here in Columbus today are Steve Fishman, our Chairman and CEO; Joe Cooper, Senior Vice President and Chief Financial Officer and Chuck Haubiel, Senior Vice President, Real Estate, Legal and General Counsel.

Before we get started I would like to remind you that any forward-looking statements we make on today’s call involve risks and uncertainties and are subject to our Safe Harbor provisions as stated in our press release and our SEC filings and that actual results can differ materially from those described in our forward looking statements. As discussed in this morning’s press release, our Q4 results contain one item and fiscal 2009 results contain two items in continuing operations that we believe are not directly related to the company’s ongoing operations. Accordingly we have provided a non-GAAP reconciliation for both the fourth quarter and the full-year fiscal 2009 and those schedules are attached to today’s press release. We prefer to focus on the ongoing operations of the business so the balance of our prepared comments will be based on non-GAAP results from continuing operations.

With that I’d like to turn it over to Steve.

Steve Fishman – Chief Executive Officer

Thanks TJ and good morning everyone. From the merchants to the stores to the marketing programs to the distribution centers that deliver the goods Q4 was a wonderful example of solid execution of a plan that was months in the making.

From a sales perspective two observations were very clear to us. First, the customer returned and was in the mood to shop this Christmas season. And second, if you provide great value and newness in your merchandise offering the customer will absolutely respond and reward you at the register. This was very clear in Q4 as our comps increased 5% with all major merchandise divisions and all regions of the country performing well and exceeding their plans. In terms of merchandising the strength was broad based with the furniture, home and hard lines leading the way with comps up in the high single digits followed by seasonal, toys and consumables comping up in the low to mid singles. We were very encouraged by the accelerating trends in furniture during Q4 as new items and new styles in upholstery and case goods were well received by the customer. Additionally our mattress business got healthy in Q4 and comped up in line with the rest of the division.

For the second consecutive quarter Home was a leading category in the store. Newness and better quality goods were again a successful formula. Real good closeout deals from new vendors and better brands resonated with the consumer. In hard lines it was all about our electronics business which comped up in the 20’s in Q4. The chain wide rollout of our video game software programs exceeded our expectations and the availability of DVDs, digital cameras, MP3 players and accessories helped drive results. Electronics vendors in particular are getting more and more comfortable selling to us and are repeatedly surprised by how much volume we bring to them as a new customer.

Seasonal and toys each performed well and were important to our Q4 success. Combined, these areas can be upwards of 25% to 30% of our business in any given week in November and December. In seasonal the customer responded to the extreme value we offered in lighting and trees. Interesting to note here that items with higher average item retail and higher perceived value did very well which is an encouraging sign when we look forward to spring and our opportunities in lawn and garden. The shift towards a more branded assortment in toys also helped drive positive Q4 comps. More branded goods, new vendors and deeper relationships with existing vendors are all trends we anticipate continuing into 2010. Our consumables business comped up in the low single digits. Our vendor relationships are stronger and deeper and the availability of excess merchandise continues to be more than enough for us to successfully manage this business.

So, broad based performance across most of the areas of the stores and our buying teams managed their businesses really well in Q4 as inventories finished the quarter down 2% per store to last year. From a stores perspective it was the best executed holiday season I have seen from this business. The talent we have added to the team along with our ready for business initiatives have improved the shopability of our stores and hopefully left a more favorable impression of Big Lots to encourage more frequent, future visits from our customers.

In terms of marketing the Buzz Club rewards program exceeded our expectations and as of last week we have over 1.4 million members. There were trends at the store level that suggest rewards can be a basket driver as reward customers spend nearly double what the average customer spends. But also we are learning that rewards can be a transaction driver which I will touch on later.

In summary, Q4 surpassed even our highest expectations as operating profit dollars increased 30% compared to last year. We generated record EPS that were up 31% to last year’s record performance and we managed our business very prudently and ended the year with over $280 million of cash and no debt.