Big Lots 2007 Annual Report Download - page 111

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With respect to distribution and outbound transportation expenses, we believe we have opportunities for further
improvement in several areas. Furniture is different than our other merchandise categories because of the bulk
of the product and how much can be shipped on a trailer. Historically, furniture has been shipped from different
buildings and on different trailers because we did not have the capacity in our regional distribution centers. In
the past, the majority of our stores received weekly shipments from a closeout truck from a regional distribution
center and a separate furniture truck from one of our furniture distribution centers on a different day. This
process was not efficient for our stores or distribution centers. Improvements in managing our inventory and
turning our goods faster have created capacity in our regional distribution centers. This allows furniture to
be handled through our regional distribution centers and combined with other merchandise which results in
fewer shipments and trailers, more efficient unloading processes and less payroll hours needed at the store
level. Additionally, we benchmarked all aspects of our transportation in an effort to find new ways to reduce
expenses. As a result, we have improved our processes, including optimizing the timing of deliveries, and
we have implemented a vendor compliance program that has generated transportation savings. We have also
reduced our fleet size and changed our mix of carriers. In certain cases, we have found it to be less expensive
overall to use one-way carriers where we have historically used round-trip carriers. While our cost per mile has
increased, we have significantly reduced the number of miles required to deliver our merchandise.
We have achieved cost savings related to changes to our health care administrator. In February 2007, we
changed our third party network administrator, allowing us to offer our associates a wider network of providers,
which in turn allows us to save money. During 2007 this change helped offset medical cost increases and
lowered our cost as a percent of sales.
In 2005, our review of our operating expenses resulted in personnel reductions in our general office, field
operations, and distribution centers. Certain resources were realigned based on the 2005 store closings and
further net store closures expected in the near term. Additionally, some redundancies between our closeout store
operations and our furniture store operations were eliminated.
Discontinued Operations
We continue to incur exit-related costs for some of the 130 stores we closed in 2005 that we have classified
as discontinued operations, specifically on the stores where lease obligations remain. We also report certain
activity related to our prior ownership of the KB Toys business in discontinued operations. See note 11 to
the accompanying consolidated financial statements for a more detailed discussion of all of our discontinued
operations.
2007 Compared to 2006
Net Sales
Net sales decreased 1.8% to $4,656.3 million in 2007 compared to $4,743.0 million in 2006. This net sales
decrease of $86.7 million is principally due to sales made during the 53rd week in 2006 and lower store count
in 2007, which were partially offset by a comparable store sales increase of 2.0%. Our comparable store sales
are calculated by using all stores that were open for at least two fiscal years as of the beginning of 2007. This
calculation may not be comparable to other retailers who calculate comparable store sales based on other
methods or criteria. From a merchandise perspective, the Consumables, Furniture, and Seasonal were the
best performing categories with comparable store sales increasing in the mid-single digits range. Comparable
store sales increases in these categories were partially offset by decreases in Home and Other. Consumables
performed consistently throughout the year with positive comparable store sales across all departments.
Furniture performed consistently throughout the first three quarters of 2007; however, recent trends in the
fourth quarter were more challenging in part because in the fourth quarter we were up against a successful
prior year launch of Serta mattresses and were transitioning between old and new styles of product in certain
key classifications. Seasonal was driven by strength in lawn & garden, summer, and Christmas, which were
partially offset by disappointing Halloween and harvest. Home category sales have been very soft since the
first quarter’s positive performance. All Home departments except for domestics ended the year with negative
comparable store sales. Within the Other category, the decrease in toy sales and toy comparable store sales was