Profits at deep-discount retailer Big Lots (NYSE:BLI) continue to remain elusive: The closeout king posted a loss of $0.17 a share for the third quarter on sales of $1.04 billion. But that was better than the $0.24 loss analysts were expecting and the $0.29 per-share loss it reported last year, when it was taking charges related to KB Toys, a former unit of the company.

The results are indicative of the slow, steady progression of a company that was floundering last year as it sought to differentiate itself from a mass of similarly styled deep-discount chains, such as Family Dollar (NYSE:FDO) and Dollar Tree (NASDAQ:DLTR) on one end and discount retailers like Retail Ventures (NYSE:RVI), Wal-Mart (NYSE:WMT), and Target (NYSE:TGT) on the other. It's been tough sledding for the business of more than 1,500 U.S. stores, which sell discontinued products and merchandise acquired after production overruns and returns.

The third quarter was no different, really. While sales rose 6.2% over last year, same-store sales notched only a 1.7% increase and made 3.3% fewer transactions. Results were helped to a certain extent by the value of those transactions -- what the company terms the "average basket" -- rising by 5.5%, particularly in consumables, household goods, and furniture.

Last year, I had looked at Big Lots' inventory turns (a key retail ratio that measures how often a company sells and replaces its inventory), as well as inventory as a percentage of sales, which, if growing, can signal problems in operations. While it was easy to identify the seasonality of Big Lots' business -- not uncommon at a retailer -- it was also plain to see that inventory levels were growing over the prior year. That was borne out by Big Lots' poor performance overall.

Beginning with the first quarter of 2005, however, the company seemed to get its inventories under control, with levels coming in progressively less than the year before.

Inventory/Sales %

Q4 Q3 Q2 Q1
2005 N/A 104.7 86.9 81.6
2004 64.8 109.0 88.3 87.1
2003 62.4 104.1 86.4 80.2


Big Lots still has some big problems, and it hasn't turned the profitability corner yet. Still, it has been making progress and is moving forward once again. There remains little to separate Big Lots from the crowd of discount dealers, but consistent profitability could be one of those deals that make it stand above the rest.

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Fool contributor Rich Duprey owns shares in Wal-Mart but does not own any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.