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Big Lots shares plunge on weak 2Q, guidance cut

COLUMBUS, Ohio (AP) — Big Lots Inc. shares lost nearly a quarter of their value on Thursday, after the discount retailer said its second-quarter net income tumbled 38 percent to miss expectations and slashed its profit forecast for the full year.

The company also announced a shakeup in its executive ranks, promoting two executives to the roles of CFO and chief operating officer and bringing back its previous head of merchandising.

On a conference call with analysts, newly named Chief Financial Officer Timothy Johnson said revenue from electronics and food improved from the first quarter at stores open at least 15 months, but sales of higher-profit furniture, home goods and seasonal items declined.

Johnson added that Big Lots had to mark down prices more than planned because of soft sales of seasonal lawn and garden items over the hotter-than-normal summer. Johnson forecast declines in revenue at U.S. stores open at least 15 months, an important measure of retail health, for the rest of the year and weaker profit margins due to a higher-than-expected rate of markdowns.

Looking ahead, Chairman and CEO Steven S. Fishman said on the call that Big Lots will start testing coolers and freezers in some of its stores in a move to sell more food. It also will test accepting food stamps.

"There's no debating that a growing percentage of the consumer base is economically stressed and becoming more dependent on the government assistance. In each of the last two years over 6 million Americans have been added to snap (the Federal Food Stamps Program) resulting in the neighborhood of 15 percent or more of our total population being enrolled in this program," he said. "Our business needs to provide customers multiple reasons to shop at our stores."

The company also said Douglas Wurl has resigned as merchandising chief and it has brought back John Martin, its executive vice president for administration, to lead merchandising and head up marketing strategy. Martin previously served as executive vice president of merchandising from 2003 to 2011.

For the quarter ended July 28, the Columbus, Ohio-based company earned $22.1 million, or 36 cents per share, down from $35.7 million, or 50 cents per share, in the same quarter last year.

Revenue rose 4 percent to $1.22 billion from $1.17 billion. Sales from U.S. operations rose 1.7 percent to $1.18 billion but sales at U.S. stores open at least 15 months fell 1.9 percent. That's a key measure for retailers because it strips out results of recently opened and closed stores.

Analysts, on average, had expected a higher profit of 42 cents per share on $1.24 billion in revenue, according to a FactSet poll.

Canaccord analyst Laura Champine said the company's woes reveal serious merchandising problems. She backed her "Buy" rating for the company, but cut her price target by $11 to $41 and reduced her 2012 profit prediction by 44 cents to $2.81 per share.

While the shares still appear cheap, Champine wrote in a note to investors, "our conviction has faded given the continued poor execution."

Canadian sales jumped to $35 million from $3.9 million a year ago. The company acquired the Canadian operations on July 18, 2011, so the prior-year period only included 12 days of Canadian sales.

Based on its results for the first half of the year and its expectations for the second, Big Lots said it now expects to post a 2012 profit of $2.80 to $2.95 per share. That's down from its previous prediction of $3.25 to $3.45 per share and far below the $3.30 per share forecast by analysts.

Separately on Thursday, the company said it promoted Lisa Bachmann to the job of chief operating officer, assuming responsibility for store operations, in addition to her current role as chief information officer. Timothy Johnson, former senior vice president for finance, was named chief financial officer to allow Joe Cooper to focus solely on running the Canadian operation.

Big Lots opened 18 new stores during the quarter and runs more than 1,500 Big Lots, Liquidation World and LW stores in North America. The company said it will be testing full market remodels in the fall in an effort to draw customers.

"Our business needs to be constantly evolving," Fishman said. "Our model is different. When we're not changing in merchandising and driving it all the way to the store and ultimately the customer, we fall behind."

Big Lots shares dropped $9.39, or 24 percent, to $29.39, after falling as low as $29.45 earlier in the day and passing their previous 52-week low of $30.79.

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