UPDATE 1-Big Lots quarterly profit falls

(Recasts, Adds earnings forecast)

NEW YORK, March 5 (Reuters) - Big Lots Inc (BIG.N) reported a better-than-expected quarterly profit on Wednesday as lower expenses overshadowed lagging sales of toys and home goods.

Net income for its fiscal fourth quarter ended Feb 2 fell to $92.02 million from $104.3 million a year earlier. But earnings per share rose to $1.04 from 94 cents per share, helped by a buyback that reduced outstanding shares.

Excluding a bankruptcy settlement, Big Lots reported income from continuing operations of 93 cents per share. That compares with analysts' average forecast for earnings of 84 cents, according to Reuters Estimates.

Big Lots, which specializes in sales of excess inventory, had forecast earnings of 81 cents to 86 cents.

In February, the retailer said its quarterly sales at stores open at least two years, or comparable store sales, fell 0.6 percent, hurt by weak demand for toys and home goods. It had warned its profit margins could suffer as it cut prices on poorly selling merchandise.

On Wednesday, it said its quarterly gross margin rate fell 0.8 percentage point, hit by those markdowns. But expenses decreased, helped by lower insurance costs and lower bonuses.

For the first quarter, it expects comparable store sales to rise 1 percent to 2 percent. It forecast income from continuing operations of 30 cents to 35 cents per share.

For its full fiscal year, it forecast income from continuing operations of $1.70 to $1.80 per share.

Its gross margin rate for the fiscal year is expected to be flat to slightly up from last year. (Reporting by Nicole Maestri; Editing by Derek Caney)