Through tighter inventory control and an improved selection of merchandise, the broad-line closeout retailer apparently made a turnaround investors can believe in, to the tune of a 16.5% stock price increase on Friday (and a further ascent today).
Income from continuing operations surged more than 600% over the year-ago period as the company closed down underperforming stores and reduced total inventory at remaining stores. By improving the selection of merchandise, Big Lots was not only able to push same-store sales higher by 4.9%, but it significantly increased its inventory turnover from 3.1 times per year to 3.6 times per year. It might not seem like a lot, but that alone freed up more than $117 million in cash for Big Lots. The closeout king also avoided more clearance sales by having better stock on hand for customers to buy. In the fourth quarter alone, that improved gross margins by 340 basis points.
While many companies announce huge strategic initiatives that never seem to go anywhere -- look at Ford's
What was important was evaluating its real estate holdings. It closed down 174 stores in 2005 and followed that up by closing down an additional 130 in 2006. While that has added to some lingering costs, it now has a more firm base of 1,375 stores. It then looked at operating expenses and cut those by 100 basis points just in the fourth quarter. By slicing the workforce in the home office and closely monitoring store payroll, Big Lots was able to see big year-over-year improvements. The third leg of its strategy was to evaluate the merchandise sold. Along with improving the mix of current products, Big Lots exited the frozen food business.
That last bit is interesting, in that Dollar Tree
Considering its recent surge in price, the discount I previously figured Big Lots was trading at narrowed somewhat over the weekend. All the discounters like Dollar Tree, Dollar General
See the value in further Foolishness:
- Foolish Forecast: Big Lots Winning Big
- Dollar Tree's Chilling Margins
- Discount Retailer Gets Discounted
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