Since the release of Big Lots' (NYSE:BIG) fiscal third-quarter 2019 earnings on Dec. 6, its stock has soared by a blistering 51% and rebounded to an essentially flat showing year to date. Shares of the discount retailer are still down 43% over the last three years but are climbing out of value territory as management effects a turnaround that's on track to generate positive per-share earnings in fiscal 2020. As I discussed in my earnings recap earlier this month, investors are greatly encouraged by the chain's cost-cutting initiatives, which are helping to stabilize its operating margin.

Yet true earnings expansion can only occur if Big Lots is able to reinvigorate its top line beyond the 2% year-over-year growth rate established through the first nine months of the current fiscal year. During management's third-quarter earnings conference call, CEO Bruce Thorn discussed four initiatives that should help bolster Big Lots' comparable sales and overall revenue growth in the coming quarters. These projects will also be vital to building investor confidence in calendar-year 2020.

Let's briefly review each below.

3D illustration of several red discount price tags that appear to float.

Image source: Getty Images.

Refreshed store format rollout

Big Lots has revamped its marketing positioning over the last two years, emphasizing furniture and related home furnishings in stores while purposefully diminishing its reputation as a close-out merchandise specialist.

Moving larger-ticket, higher-margin furniture, as well as furnishings accessories and seasonal items to the front of remodeled stores, is central to the company's "Store of the Future" concept. During the third-quarter call, CEO Thorn stated that Big Lots has implemented renovations across roughly one-third of its store base. Locations that implement Store of the Future are seeing high-single-digit sales increases in the first year following a makeover. Big Lots expects that the ongoing renovations will provide a companywide lift of 1 percentage point to comparable sales in fiscal 2020.

Scaling "The Lot" 

In the second half of 2019, Big Lots has market tested a 500 square-foot, front-of-store area it dubs "The Lot," which offers a changing complement of theme-based merchandise. Recent themes have included back-to-school dorm savings, Halloween, sports tailgating, and backyard bargains. 

The Lot is designed to "bring newness, freshness, and novelty" to stores -- in other words, to attract new customers as well as loyalists. The retailer is testing The Lot within its Stores of the Future, and management shared that test locations are experiencing a 1%-2% lift in comparable sales, as well as higher repeat traffic. The organization plans to scale The Lot to all existing Stores of the Future in fiscal 2020. 

Launching the Broyhill brand 

During the fourth quarter of fiscal 2018, Big Lots acquired the trademarks and trade name of the Broyhill furniture brand for roughly $16 million, and the company has been prepping a 2020 Broyhill launch for most of 2019. Big Lots will begin promoting the brand to customers in January 2020, with a systemwide rollout scheduled for April. Company executives believe the well-known furniture line will act as a product differentiator, while also improving the company's quality perception in customers' eyes.

The lag time between the Broyhill acquisition and its introduction to stores and online channels results from a deliberate period of market research to gauge customers' demand for various furniture types and styles. The company is investing significant resources into the project. Thorn stated that the launch "will be supported with marketing messaging through our print circular and digital channels and through beautifully designed in-store signage, all based on extensive work that has been done on brand positioning and guidelines." 

Bringing a trusted brand into the company's furniture inventory mix is likely to boost profit margins, and the Broyhill experiment may lead to further brand acquisitions. Shareholders can expect management to discuss initial launch results in its fiscal first-quarter 2020 earnings report in June.

Modifications to "traffic drivers" 

Big Lots' "traffic drivers" program seeks to build repeat business from core weekly customers by balancing between dependable, "never out" food and consumable items and serendipitous close-out merchandise. On the earnings call, Thorn relayed to investors that the company plans to modify the program somewhat by de-emphasizing food SKUs (stock-keeping units) in favor of a broader range of consumables (i.e., cleaning, beauty, health, and other household items).

Big Lots will reallocate retail square footage to achieve the changes. In a typical store, 20 linear square feet of food cooler space will be replaced by smaller coolers on aisle endcaps. Thorn observed that the larger coolers carry lower margins, are difficult to stock, and expensive to maintain.

This tweak is quite interesting, as competitors including dollar-store chains have recently sought to increase cooler space in a bid to protect their market share from discount grocers and warehouse clubs. Big Lots' management team has a fine read on the company's typical customer, however, and believes it can foster higher traffic by trimming refrigerated food offerings and amplifying an eclectic product mix.

The experiment is indicative of Big Lots' general movement to add more sales to the till while growing profit margins. As such projects come to fruition, they should provide the fuel for the "BIG" symbol to continue its recovery in 2020.