Big Lots 2008 Annual Report Download - page 94

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Discontinued Operations
Loss from discontinued operations was $3.3 million, net of tax, in 2008 compared to income from discontinued
operations of $7.3 million, net of tax in 2007. The 2008 loss from discontinued operations of $3.3 million, net
of tax, was comprised of $3.0 million, net of tax, for the KB-II Bankruptcy Lease Obligation (as defined in note
11 to the accompanying consolidated financial statements) and $0.3 million, net of tax, for exit-related costs
on the remaining 2005 closed stores which met the criteria for classification as discontinued operations. KB
Toys declared bankruptcy again in December 2008. As a result of this bankruptcy filing, KB Toys rejected 31
store leases for which we believe we have an indemnification obligation. Based on the lease data for these 31
stores and using our prior experience with these matters, we estimated a KB-II Bankruptcy Lease Obligation
of $3.0 million, net of tax. The income from discontinued operations in 2007 was principally comprised of 1)
the release of our KB-I Bankruptcy Lease Obligations of $6.6 million, net of tax, 2) the recognition of $1.1
million of proceeds, net of tax, from the bankruptcy trust as recovery for prior charges incurred by us for KB-I
Bankruptcy Lease Obligations and the Pittsfield, Massachusetts distribution center (formerly owned by KB
Toys) mortgage guarantee, and 3) exit-related costs on the 130 closed stores of $0.6 million, net of tax, related to
expenses on the portion of the 130 stores where the leases have not been terminated.
2007 Compared to 2006
Net Sales
Net sales by merchandise category, as a percentage of total net sales, and net sales change in dollars and
percentage in 2007 compared to 2006 were as follows:
2007 2006 Change
($ in thousands)
Consumables ................. $1,339,433 28.8% $1,317,095 27.8% $ 22,338 1.7%
Home ....................... 783,047 16.8 842,974 17.8 (59,927) (7.1)
Furniture .................... 687,292 14.8 681,952 14.4 5,340 0.8
Hardlines .................... 629,119 13.5 645,338 13.6 (16,219) (2.5)
Seasonal..................... 597,933 12.8 584,762 12.3 13,171 2.3
Other ....................... 619,478 13.3 670,927 14.1 (51,449) (7.7)
Net sales .................. $4,656,302 100.0% $4,743,048 100.0% $(86,746) (1.8)%
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 $76.2 million of sales made during the 53rd week in 2006
combined with lower net sales of $95.2 million resulting from fewer open stores, partially offset by a comparable
store sales increase of 2%, which increased net sales by $84.7 million. From a merchandise perspective,
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 2007 with positive
comparable store sales across all departments. We believe Consumables experienced these results because our
merchants continued to acquire widely-recognized brand name merchandise that offered tremendous value to
the customer. Furniture performed consistently throughout the first three quarters of 2007; however, sales trends
in the fourth quarter were more challenging in part because we were transitioning between old and new styles
of merchandise in upholstery and case goods and a successful launch of Serta mattresses occurred in the fourth
quarter of 2006. Seasonal was driven by strength in lawn & garden, summer, and Christmas, which was partially
offset by disappointing Halloween and harvest sales. This was the second year in a row of favorable Christmas
results. Our lawn & garden and summer business drove the favorable Seasonal category performance in the first
half of 2007. The net sales of the Seasonal category in 2007 exemplify results produced by our merchandising
strategy, as the quality and value proposition has increased significantly and the average item retail price has
increased as well. This supports one of the assumptions in our merchandising strategy that customers are willing
to pay for quality and great value when they shop our stores. Home category sales were very soft following
the positive performance in the first quarter of 2007. All Home departments except for domestics ended 2007
with negative comparable store sales. Within the Other category, the decrease in toy comparable store sales was