August was one month retailers will be happy to see pass. Oil prices gushed to more than $50 a barrel. Hurricanes Bonnie and Charley buffeted the East Coast. Consumers apparently decided to stay home and order movies from Netflix (NASDAQ:NFLX) rather than go to the store shopping. Retail same-store sales are expected to show only a 2.2% increase for the month, the smallest increase since May of last year.

A 2.2% increase would be welcome at closeout retailer Big Lots (NYSE:BLI), which actually reported a 2% drop in same-store sales for August. This follows a 2.4% drop in June and a flat July. Their lots, big or small, are not attracting much foot traffic.

Fool contributor David Meier analyzed the problem with Big Lots in July, comparing it to being caught in the middle of the "peloton," a group of bicycle racers riding as a pack. Without having any distinction from its competitor Retail Ventures (NYSE:RVI), which runs Value City and Filene's Basement, or even discount chains Family Dollar (NYSE:FDO), Dollar Tree (NASDAQ:DLTR), or Fred's (NASDAQ:FRED), it's difficult to break away from the pack.

Undoubtedly higher oil prices are taking a toll, eating into disposable incomes of consumers. Yet Big Lots has other troubles, too. Namely inventory. Where David Meier pointed out that the company's inventory turns are growing (that is, the amount of time it takes for a company to sell down its inventory and restock it in a given period), comparing inventory to sales lets you also see that it is not the most efficient operator. By dividing annual sales by inventory, investors can smooth out seasonality factors, which for retailers means the Christmas season.

Fiscal Year-End Inventory -- Sales (%)

01/04 01/03 01/02 01/01 01/00
Big Lots 19.9 20.1 20.5 22.7 24.4
Retail Ventures 16.2 15.9 17.4 17.8 24.7

The comparison above shows that even as Retail Ventures had a slight uptick last year, it has been the more efficient operator, overtaking Big Lots in 2000 and never looking back. And when you look at the quarterly numbers, a worsening trend for Big Lots becomes even more apparent.

Big Lots Inventory -- Quarterly Sales (%)

Q1-05 Q4-04 Q3-04 Q2-04
Inv/Q Sales 87.0 62.5 104.1 86.4
Year-Ago Q 80.2 63.8 91.9 91.5

Retails Ventures Inventory - Quarterly Sales (%)

Q1-05Q4-04Q3-04 Q2-04
Inv/Q Sales72.6 58.380.578.9
Year-Ago Q 77.0 77.579.173.3

Where Retail Ventures appears to have gotten its inventories under control and is lowering its inventory-to-sales ratio, Big Lots sees its ratio growing. The growth in year-over-year numbers has not reached my red flag zone of 20% increases, but it is moving into yellow flag territory and bears watching. And considering the trends in same-store sales, the company has been reporting for the past quarter, I would guess that when Big Lots publishes its financial statements it won't be a pretty sight.

If a company wants to fudge numbers, it inevitably will begin with the income statement because that's what Wall Street and investors scrutinize first. The balance sheet, as a result, is often (though not always) left intact. In particular, by looking at inventory levels, whether it is the number of turns or as a ratio of sales, investors can spot developing trends before they impact on the stock's price.

Big Lots' inventory woes could mean big worries down the road.

Fool contributor Rich Duprey worries that it's going to rain the next time he take his Harley-Davidson Deuce out. He does not own any of the stocks mentioned in this article.