Big Lots 2010 Annual Report Download - page 94

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20
Operating Strategy
Over the past five fiscal years (2006 through 2010), we have successfully repositioned our business by
implementing a strategy we refer to as the What’s Important Now Strategy (“WIN Strategy”). The WIN
Strategy focuses on three key elements of our business: merchandising, real estate, and cost structure. The
WIN Strategy was designed to increase the operating profit rate of our existing store base. In 2009, driven by
both the improvements in our store productivity and the softening of the commercial real estate market, we
expanded our WIN Strategy to also include the pursuit of net new store growth. Due to the continued focus on
the WIN Strategy, our operating profit rate has steadily expanded from 5.5% in 2008 to 7.2% in 2010 and our
operating profit dollars grew from $254.9 million to $357.3 million in 2010. The growth in operating profit,
coupled with our share repurchase activities, has translated to significant growth in earnings per share from
continuing operations, which has increased from $1.89 per diluted share in 2008 to $2.83 per diluted share in
2010. Over the past three years, we have generated approximately $900 million of cash of which approximately
$275 million was reinvested in our business through capital expenditures and $380 million was returned to
shareholders through aggregate share repurchases under publicly announced share repurchase programs.
In 2011, we anticipate the key elements of the WIN Strategy will remain consistent, including the growth
phase that we entered in 2010. We anticipate that the commercial real estate market will continue to provide
us with real estate opportunities at prices that are appropriate for our financial model and return on capital
requirements. Given the strength of our financial performance, we believe we will continue to open new stores
and take advantage of the current real estate market conditions.
In 2011, we anticipate:
• An operating profit rate of 7.3% to 7.5% based on a total sales increase of 5% to 6%, flat gross
margin rate, and continued expense leverage (expenses as a percent of net sales) compared to last
year.
• Earnings per diluted share from continuing operations to be $3.05 to $3.15.
• Opening 90 new stores and closing 45 stores, for net growth of 45 stores or 3%.
• Cash provided by operating activities of approximately $330 million to $335 million less capital
expenditures of approximately $125 million to $130 million resulting in approximately $205 million
of cash available for investment or redeployment.
• The remaining $57.8 million of share purchase authorization under the 2010 Repurchase Program
may be utilized in the open market and/or in privately negotiated transactions at our discretion,
subject to market conditions and other factors.
The following sections provide additional discussion and analysis of our WIN Strategy with respect to
merchandising, real estate, and cost structure. The “2010 Compared To 2009” section below provides additional
discussion and analysis of the impact of these strategies on our financial performance and the assumptions and
expectations upon which we are basing our guidance for our future results.
Merchandising
From a merchandising perspective, our competitive positioning as the nation’s largest broadline closeout retailer
affords us a strategic advantage when sourcing merchandise for our stores. We source our merchandise in three
key ways:
• Manufacturers and vendors have closeout merchandise for a number of different reasons including
other retailers canceling orders, other retailers going out of business, marketing or packaging
changes, a new product launch that has failed, or for various other reasons. In these situations, we are
able to source product at a discounted cost and offer significant value to our customers. We currently
have thousands of vendor relationships for closeout inventory that have been developed over many
years. These relationships and the size and financial strength of our company are a key barrier to
entry and minimize the opportunities for other competitors to enter our retail segment.