Discount retailer Big Lots Inc. (NYSE: BIG) reported good 2Q 2007 earnings, driven in large measure by dramatic improvements in inventory control and distribution. Big Lots has gotten better at getting merchandise into stores on time and then moving it out the door faster. Big Lots reduced cost of inventory 13% to $714 million, still a hefty amount. But Big Lots has also increased its inventory turnover rate, which resulted in a 5% increase in same-store sales. Lots of retailers would like to post such an increase for just one quarter. Big Lots has posted 5% or better increases in same-store sales for the last two quarters.

Big Lots' strategy to concentrate on its supply chain management is beginning to pay off handsomely. Net sales increased 2.7% to $1,084.9 million or diluted EPS of $0.21, 5 times the amount of 2Q 2006. Operating profit also increased 3% to $33.4 million even though Big Lots is selling lower-margin merchandise. In addition to distribution system enhancements, Big Lots also kept the lid of insurance-related costs and cut back on advertising spending.

There are many discount retailers for investors to choose from. Big Lots is more attractive than most because the company carries NO long-term debt obligations, and presently has cash and cash equivalents of $109 million on hand. The company spent $215 million of the $600 million authorized on stock repurchases in 2Q, and will continue its buyback in the following quarters.

Given the good numbers from the previous two quarters, and 3Q and 4Q predicted comparable-store sales increases of 1%-3% per quarter, Big Lots management increased FY 2007 guidance EPS to $1.43-$1.48. Cash flow is expected to increase to $240 million, and inventory turnover rate will continue to climb. Big Lots wants to sell more merchandise more quickly. Lucky investors in the stock were up 9% on Wednesday as a result of the earnings release. The stock closed on August 29 at $28.91, up $2.61.