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A Big Day for Big Lots

Shares climbed Friday after the retailer posted a sharp profit rise

After years of falling profits, Big Lots (BIG) is turning around. The Columbus (Ohio) retailer said Mar. 9 that its earnings improved sharply during recent months, as recently closed stores and an improved product mix begin helping the business.

Net income during the three months ended Feb. 3 amounted to $104.3 million, compared to net income of $14.7 million during the same period last year. "We made Big Lots a stronger company in 2006 by staying focused on our WIN strategy and holding our team accountable," CEO Steve Fishman said in a press release March 9.

Fishman has taken steps in recent years like reducing his company's home office work force and closely managing its store payroll, according to Standard & Poor's (S&P, like, is owned by The McGraw-Hill Companies.) Fishman has also been changing the company's product mix and closing its underperforming stores -- 130 of them in January 2006. Big Lots now operates 1,375 stores.

Such efforts have been paying off. The company's fourth quarter net sales for the quarter ended Feb. 3 gained 10.8% year over year to $1,545.4 million. Sales for stores open at least two years at the beginning of the fiscal year increased 4.9% for the quarter.

"We see BIG raising sales productivity in fiscal 2008 (Jan.) on further tweaking of product mix and controlled expansion," said Standard & Poor's equity analyst Jason Asaeda. Citing expectations of cost cuts and share buybacks, Asaeda lifted his fiscal 2008 earnings estimate, bringing the company's 12-month target price up by $8 to $34 per share.

Asaeda wasn't the only one. Investors bid up the stock 16.5% to $28.84 per share on March 9.

KeyBanc upgraded Big Lots' stock to buy from hold. Analyst Jeffrey Stein said that the company has been able to distinguish itself by improving execution, cutting costs, and providing a more compelling value proposition to the consumer.

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