Big Lots reported a better-than-expected rise in quarterly profit on improved cost controls, but the closeout retailer said it now expects same-store sales to fall in the holiday quarter amid weak demand for toys and home goods.
"The environment is such right now that it's tough for anyone to drive meaningful topline growth," said Chairman Steve Fishman on a call with analysts. "...It's just too pervasive right now to say that the micro-environment is not impacting retail."
Net income rose to $14.3 million, or 14 cents per share, in the third quarter ended on Nov. 3 from $1.7 million, or 2 cents per share, a year earlier.
Sales fell 1.8 percent to $1.03 billion, hurt by weak sales of toys, home goods and fall seasonal merchandise.
Analysts had expected a profit of 12 cents a share on revenue of $1.03 billion, according to Reuters Estimates.
Crucial Current Quarter
Big Lots , which specializes in sales of excess inventory, is in the midst of a turnaround plan that has involved closing stores and revamping its merchandise.
After acknowledging last year that it strayed from its closeout roots, it has been focusing on getting existing customers to buy more in its stores, a strategy it calls "raise the ring," which has helped boost results.
But in October it forecast a decline in quarterly sales at stores open at least two years, called same-store sales, instead of the increase it had previously expected as sales of higher margin goods like toys and home items lagged.
Its third-quarter same-store sales fell 0.5 percent.
The current quarter is now a crucial one for the retailer.
Last year, the holiday fourth quarter accounted for approximately 80 percent of its full year net income, and this year it is forecast to account for a little over half of its net income.
For the quarter Big Lots expects same-store sales to be "slightly negative," compared with a prior outlook that called for an increase of 1 percent to 3 percent.
Sales continue to lag in toys and home goods, and are also slow in its holiday "Trim-A-Tree" business, it said, and its profit margins could be hurt as it cut prices on merchandise that is not selling quickly.
Big Lots said that during the Thanksgiving weekend, which is seen as the start of the holiday shopping season, customers were buying discounted items and not necessarily browsing for other goods.
"The customers were extremely focused on the deal," Fishman said. "They were extremely focused on coming in when they saw something they wanted and put it in the basket and left."
Expense Controls to Offset Sales
To offset lagging sales, Big Lots has been keeping a close eye on expenses and in October, it forecast third-quarter earnings to be near the high end of its 9 cents to 13 cents per share range, helped by better inventory management and expense controls.
On Friday, Big Lots said operating expenses as a percentage of sales had improved due in part to store and distribution center efficiencies, lower insurance-related costs, and lower depreciation expense.
For the fourth quarter, Big Lots said lower sales and a lower gross margin rate should be partially offset by a lower share count because it expects to complete a $600 million share repurchase program.
Big Lots forecast fourth-quarter earnings per share of 81 cents to 86 cents per share. Analysts, on average, had been expecting it to earn 88 cents per share.