New stores help Big Lots sales, sees strong 2011

BANGALORE (Reuters) - Close-out retailer Big Lots Inc (BIG.N) posted a bigger-than-expected fourth-quarter profit and forecast strong 2011 earnings, as cost controls and sales at new stores help offset a dip in gross margins.

Shares of the company rose as much as 6 percent but pared most of those gains.

Big Lots, which stocks its stores with merchandise that has been overproduced, discontinued or rejected by other retailers, said gross margin fell 50 basis points as domestic freight costs rose and it was forced to keep prices low to compete with rivals during the holiday season.

Last month, Wal-Mart reported its seventh consecutive quarterly decline in sales at U.S. stores open at least a year, and retailers catering to budget-oriented shoppers are likely to face more challenges as gas prices rise.

Big Lots said it was planning for a "decent spring season, and a pretty aggressive fall season" despite rising fuel costs.

"We have no control over that. The only good part of that is that everyone that we compete against has the exact same problem," an executive said on a conference call with analysts.

Comparable sales at stores open for at least two years at the beginning of the fiscal year were flat, it said, but net sales rose 3.8 percent to $1.52 billion.

Most US retailers beat February same-store sales estimates when they reported on Thursday.

Analysts expected the Thomson Reuters index of 25 retailers to show a 3.6 percent rise in February sales at stores open for at least a year. The retailers reported a rise of 4.2 percent.

Big Lots, which competes with larger firms such as Dollar General Corp (DG.N) and Wal-Mart Stores Inc (WMT.N), earned $110.1 million, or $1.46 a share, in the fourth quarter.

Analysts, on average, were expecting earnings of $1.38 a share, according to Thomson Reuters I/B/E/S.

Discretionary buys of higher-ticket items helped sales, the company said. Furniture, home goods, and seasonal items each posted mid-single-digit comps during the holiday quarter.

Columbus, Ohio-based Big Lots also expects earnings of $3.05-$3.15 a share from continuing operations in 2011 against analysts' expectation of $2.77 a share.

Shares of the company were up over 2 percent at $40.82 on Thursday on the New York Stock Exchange.

(Reporting by Nivedita Bhattacharjee; Editing by Joyjeet Das)