The Good News In The Big Lots Miss

| About: Big Lots, (BIG)

Big Lots (NYSE:BIG) should be one of the disasters du jour, after an earnings miss and delivering a lower forecast.

Some analysts claim it competes with Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), but I've been to the stores. It doesn't. It's not selling general merchandise at a discount, it's selling close-out merchandise.

It would be more accurate to compare Big Lots with the dollar store and deep-discount chains like Family Dollar (NYSE:FDO) and Dollar General (NYSE:DG). (For more on that sector, see our Sammy Pollack.)

So why is this good news?

It's good news because it's isolated to the low end of the market. Other big retailers are doing OK. And the higher you go up the stack, the more you see premium merchandise at something closer to a retailer, the better things are getting. Wal-Mart is up 6.5% for the year. Macy's (NYSE:M) is up 12.5% for the year. Dillard's (NYSE:DDS) is up more than 50% for the year.

What this says is that consumers are, for the most part, no longer desperate. Most are moving slowly back into their old shopping habits, and the better off they are the more actively they're doing this.

Higher-end retailing is more of a stock-picker's market than low-end retailing. There are more names, there is more differentiation as the word "fashion" replaces the word "value." People go to stores like Big Lots in hopes of finding a bargain. They go to Wal-Mart because they have a list. They go to Dillard's because they want something good.

What Big Lots is telling us, in other words, is that the American consumer is back, and that the economy is returning to normal. You can buy again based on fundamentals and business execution. Risk is back on.

And that's good for everyone.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.