Skeptics abound but Big Lots CEO sees growth

By Nicole Maestri

NEW YORK (Reuters) - When a retailer like Wal-Mart Stores Inc (WMT.N) tells vendors to cut the size of the cereal boxes they sell in its stores, it brings a smile to the face of Steve Fishman, chief executive of Big Lots Inc (BIG.N).

"There is nothing better for us then when we hear change," Fishman said in an interview on Thursday. "The word change ... to us is opportunity."

Big Lots is a close-out retailer that sells what others cannot. When manufacturers, like cereal makers, are left with extra inventory due to a discontinued line or a change in packaging requirements, they call Big Lots, which will then buy the merchandise and sell it in its stores -- at a discount.

Big Lots is fielding more phone calls these days as retailers, faced with weak consumer demand, cancel orders and manufacturers find themselves stuck with excess goods.

The model has paid off this year. Its stock has risen 96 percent during 2008 through Thursday, and it was the best performing stock in the Standard & Poor's 500 index .SPX through the first five months of the year.

With a high percentage of short interest in its stock, many investors are now betting Big Lots will stumble. But Fishman is firm in his belief that the retailer has nowhere to go but up.

"In 2005, we earned 14 cents a share. This year, we said we're going to earn in the $1.80 to $1.90 a share (range)," he said. "In 2005, our operating profit was $26 million. This year it's going to be around $260 million. That's pretty strong performance and pretty strong execution."

SNATCHING UP THE EXCESS

Fishman took over as CEO of Big Lots in mid-2005, and has worked to return the retailer to its close-out roots. Big Lots alienated shoppers who were seeking cut-price, name-brand goods after venturing into other areas, like selling frozen food.

"Our customer doesn't come to us expecting a Nordstrom's level of in-store shopping experience. They want value, treasures, merchandise on the floor and clean restrooms, and we need to meet those expectations," Fishman said in 2005.

Big Lots has stopped carrying frozen food, freeing up space for more popular items like pet food or furniture. It has closed underperforming locations and tried to get shoppers to spend more in its stores, a strategy called "raise the ring."

Fishman is pushing to add more brand-name items, like Serta mattresses or Cuisinart appliances. A recent ad shows a Eureka vacuum for $70, down from a retail price of $149.99; and a Remington shaver for $20, half off its $39.99 retail price.

Fishman has also tried to explain the company's business to analysts, and differentiate it from dollar stores, which tend to sell items for under $10 and cater to lower-income customers.

"We're an enigma," he said at an investor conference this month. "It's been a real challenge for the marketplace."

UPS AND DOWNS