UPDATE 2-Big Lots says sales declines to stop as investments pay off

Fri Mar 7, 2014 12:27pm EST

* 4th-qtr adjusted earnings from U.S. operations beats market estimates

* Says adding more freezers and coolers in stores to boost sales

* Financing program to push furniture sales

* Shares jump 23 pct (Adds CEO, analyst comment; updates shares)

By Aditi Shrivastava and Maria Ajit Thomas

March 7 (Reuters) - Close-out retailer Big Lots Inc said same-store sales would stop falling in the current fiscal year as its investments to boost sales start paying off.

Big Lots shares rose as much as 23 percent on Friday after the company also reported a better-than-expected profit for the holiday shopping quarter - a period for which most U.S. retailers posted weak results due to an unseasonably cold winter and heavy discounting.

Big Lots, which buys products such as furniture and toys from stores that are closing down and sells them at a discount, said a pilot furniture financing program and the installation of freezers and coolers in stores will help boost sales this year.

As a result, Big Lots, which has posted a fall in same-stores sales in every quarter of fiscal 2013, said comparable store sales would be flat to up 2 percent in fiscal 2014.

"There was a lot that went well today for Big Lots," KeyBanc Capital Markets analyst Brad Thomas said.

"These are initiatives that the company had talked about in the past but the benefits that they're seeing are very encouraging and give us a reason for excitement for this year."

However, Barclays analyst Meredith Adler pointed out that the rise in the company's shares could also be due to the increase in the short interest on the stock.

The short interest in the company's stock has risen since it reported weaker-than-expected third-quarter results in early December, indicating investors could have been expecting weak fourth-quarter results.

INITIATIVES SUCCESSFUL

Big Lots said overall sales increased in the low-single digit percentage range at stores in which it had installed freezers and coolers.

Encouraged by the success, the company said it would spend about $60 million to put coolers and freezers in about 600 stores this year to boost its biggest business, food and consumables.

The company's pilot furniture financing program also resulted in a high single to low double digit rise in furniture sales.

The program will be rolled out to most of its stores this year starting late in the current quarter, which Chief Financial Officer Tim Johnson said should help boost sales this year.

However, net sales fell about 6 percent to $1.64 billion in the fourth quarter ended Feb. 1. The year-earlier quarter had one more week.

The company's U.S. comparable store sales decreased 3 percent, compared with its own forecast of a decline of low- to mid-single digits.

Big Lots' net income fell 30 percent to $84.4 million, or $1.47 per share.

The company reported adjusted earnings of $1.45 per share from its U.S. operations, beating the average analyst estimate of $1.40 per share, according to Thomson Reuters I/B/E/S.

The company also said it had closed all its stores in Canada, where it had been posting losses.

Big Lots' shares have fallen about 21 percent since it reported third-quarter results on Dec. 5. In that same period the short interest on its outstanding shares rose to 15 percent as of Feb. 14 from 9.8 percent as of Dec. 13.

The company's shares were up 19 percent at $34.88 in afternoon trading on the New York Stock Exchange. They touched a high of $36.00 earlier in the session. (Additional reporting by Shailaja Sharma in Bangalore; Editing by Kirti Pandey and Savio D'Souza)

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