Big Lots May Be Giving the Store Away With Discounts -- And That's OK

Last Updated Aug 26, 2010 2:37 PM EDT

Big Lots (BIG) released solid first quarter sales numbers last week, but it's the company's earnings release on May 27 that will reveal if the company is giving the store away. Which, if true, might actually not turn out to be a bad idea.

CEO Steven Fishman (pictured below) noted that the company saw strong growth in discretionary categories consumers had shied away from in the recession, with furniture and home furnishings "each comping up double digits." Home-related merchandise has been a positive for retailers lately, but Big Lots isn't passively wanting to benefit from the sales trend. Last week, the company offered up to 70 percent off furniture, discounts of $30 to $50 on patio furnishings and Hamilton Beach counter-top appliances for $18.

So the big question is, how much profit is Big Lots surrendering for those sales gains? Such decisions often signal that a retailer is losing out in the competitive struggle with rivals -- giving ground on one metric, earnings in this case, to make another, comparable store sales, look better.

Big Lots, however, may actually be capitalizing on a moment of opportunity. Right now, consumers are feeling a bit better about spending money. Nielsen's Global Consumer Confidence Index, released last week, showed that consumer confidence among Americans has continued to advance past the pre-recession score of 83 points registered in 2008's first quarter. It seems clear that consumers remain cautiously -- or maybe even skeptically -- optimistic and likely to maintain their recessionary habit of bargain hunting.

Which makes the time right for Big Lots to jump on an opportunity. When consumers feel more flush, Big Logs might be less attractive, given its bargain-store atmosphere and low-service environment. Yet, by getting relatively well heeled but still wary shoppers to purchase at its stores, Big Lots is probably convincing more people that it's an acceptable alternative to the retailers they traditionally shopped for furniture and home furnishings.

If Big Lots doesn't post first quarter profit growth in line with its sales advances, it might be fair to say the company is basically giving the store away -- albeit for a good reason. And if Big Lots returns to big profits, watch out. Because that suggests shoppers are buying more than the deeply discounted items when they visit its stores -- further evidence, in fact, that the company already is winning over more consumers.