Big Lots 2008 Annual Report Download - page 72

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For further discussion of our warehouses and distribution facilities and related initiatives, refer to the
Warehouse and Distribution section under Item 2, Properties, in this Form 10-K and the Cost Structure section
included in our Overview section under Item 7, MD&A, in this Form 10-K.
Advertising and Promotion
Our brand image is an important part of our marketing program. Our principal trademarks, including the
Big Lots® family of trademarks, have been registered with the U.S. Patent and Trademark Office. We use
a variety of marketing approaches to promote our brand and retail position through television, internet, in-
store point of purchase, and print media. The centerpiece of our marketing efforts is our television campaign
which combines elements of strategic branding and promotion. These same elements are then used in all other
consumer touch points. Our highly targeted media placement strategy uses national cable as the foundation of
our television buys which is then supplemented with local broadcast in key markets. Our marketing program
utilizes printed advertising circulars, which we design, in all markets that are served by our stores. In 2007
and 2008, we distributed multi-page circulars covering 26 and 27 weeks, respectively. In 2009, we expect to
distribute circulars covering 27 weeks. We distribute circulars through a combination of newspaper insertions
and mailings. We create regional versions of these circulars to take advantage of market differences caused by
product availability, climate, and customer preferences. We continue to use our website (www.biglots.com) in
order to improve the efficiency of communicating with our customers using the internet. In 2006, we overhauled
and re-launched our website. Our on-line customer list, which we refer to as the Buzz Club, has grown from just
over one million members at the end of 2006 to over four million members at the end of 2008. The Buzz Club is
an important marketing tool which allows us to communicate in a cost effective manner with our core customer
base, including e-mail delivery of our circulars. In addition, store promotional materials, including in-store
signage, emphasize special bargains and significant values offered to customers.
Over the past five fiscal years, total advertising expense as a percentage of total net sales ranged from 2.2% to
2.3%. In 2008, advertising expense as a percentage of total net sales was 2.2%.
Seasonality
We have historically experienced, and expect to continue to experience, seasonal fluctuations, with a larger
percentage of our net sales and operating profit realized in the fourth fiscal quarter. In addition, our quarterly
net sales and operating profits can be affected by the timing of new store openings and store closings, the
timing of television and circular advertising, and the timing of certain holidays. We historically receive a higher
proportion of merchandise, carry higher inventory levels, and incur higher outbound shipping and payroll
expenses in the third fiscal quarter in anticipation of increased sales activity during the fourth fiscal quarter.
The fourth fiscal quarter typically includes a leveraging effect on operating results because net sales are higher
and certain of our costs are fixed such as rent and depreciation.
The seasonality of our net sales and related merchandise inventory requirements influences our availability of
and demand for cash or access to credit. We historically have maintained and drawn upon our credit facility to
fund our working capital requirements, which typically peak slightly before or after the end of our third fiscal
quarter. We historically have higher net sales, operating profits, and cash flow provided by operations in the
fourth fiscal quarter which allows us to substantially repay our seasonal borrowings. In 2008, our borrowings
under our $500.0 million unsecured credit facility entered into in October 2004 (“2004 Credit Agreement”)
were primarily driven by the execution of the $600.0 million share repurchase program authorized by our
Board of Directors in March 2007 (“March 2007 Repurchase Program”), the $150.0 million share repurchase
program authorized by our Board of Directors in November 2007 (“November 2007 Repurchase Program”),
and our seasonal borrowing requirements as discussed above. In 2008, total borrowings under the 2004 Credit
Agreement peaked at approximately $300 million in early November. As of January 31, 2009, our borrowings
under the 2004 Credit Agreement were $61.7 million. We expect that borrowings will vary throughout 2009
depending on various factors, including our seasonal need to acquire merchandise inventory prior to peak
selling seasons and the timing and amount of sales to our customers. The 2004 Credit Agreement terminates
in October 2009. We expect to execute a new bank credit facility by the end of the second quarter of 2009.
For additional information on the 2004 Credit Agreement, a discussion of our sources and uses of funds, and
our efforts to execute a new bank credit facility, see the Capital Resources and Liquidity section under Item 7,
MD&A, in this Form 10-K.