CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The Private Securities Litigation Reform Act of 1995 ("Act") provides a safe harbor for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statements. We wish to take advantage of the "safe harbor" provisions of the Act.

Certain statements in this report are forward-looking statements within the meaning of the Act, and such statements are intended to qualify for the protection of the safe harbor provided by the Act. The words "anticipate," "estimate," "expect," "objective," "goal," "project," "intend," "plan," "believe," "will," "should," "may," "target," "forecast," "guidance," "outlook," and similar expressions generally identify forward-looking statements. Similarly, descriptions of our objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements relate to the expectations of management as to future occurrences and trends, including statements expressing optimism or pessimism about future operating results or events and projected sales, earnings, capital expenditures and business strategy. Forward-looking statements are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Forward-looking statements are and will be based upon management's then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. Although we believe the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of our knowledge, forward-looking statements, by their nature, involve risks, uncertainties and other factors, any one or a combination of which could materially affect our business, financial condition, results of operations or liquidity.

Forward-looking statements that we make herein and in other reports and releases are not guarantees of future performance and actual results may differ materially from those discussed in such forward-looking statements as a result of various factors, including, but not limited to, the current economic and credit conditions, the cost of goods, our inability to successfully execute strategic initiatives, competitive pressures, economic pressures on our customers and us, the availability of brand name closeout merchandise, trade restrictions, freight costs, operating in Canada, the risks discussed in the Risk Factors section of our most recent Annual Report on Form 10-K, and other factors discussed from time to time in our other filings with the SEC, including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. This report should be read in conjunction with such filings, and you should consider all of these risks, uncertainties and other factors carefully in evaluating forward-looking statements.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update forward-looking statements whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.

OVERVIEW

The discussion and analysis presented below should be read in conjunction with the accompanying consolidated financial statements and related notes. Each term defined in the notes has the same meaning in this item and the balance of this report.

We are North America's largest broadline closeout retailer, and manage our business as two segments: U.S. and Canada. The following are the results from the first quarter of 2012 that we believe are key indicators of both our consolidated and segment operating performance when compared to the first quarter of 2011:

Consolidated Highlights
• Net sales increased $67.2 million, or 5.5%.

• Diluted earnings per share from continuing operations decreased from $0.70 per share to $0.63 per share.

• Inventory increased by 8.0% or $62.8 million to $847.7 million from the first quarter of 2011.

• We exhausted the remaining purchase authorization under the 2011 Repurchase Program by acquiring 2.5 million of our outstanding common shares for $98.5 million.

U.S. Segment Highlights
• Net sales increased $35.0 million, or 2.8%.

• Comparable store sales for stores open at least fifteen months decreased 0.8%.

• Gross margin dollars increased $6.8 million, while gross margin rate decreased 60 basis points from 40.3% to 39.7% of sales. Gross margin dollars in the first quarter of 2012 include the impact of a non-cash, non-recurring charge of

$5.6 million, or 40 basis points, related to a change in accounting principle associated with the implementation of our new retail inventory systems.
• Selling and administrative expenses increased $14.4 million. As a percentage of net sales, selling and administrative expenses increased 30 basis points to 31.8% of net sales.

• Operating profit rate decreased 110 basis points to 5.9%.

Canadian Segment Highlights
• Net sales for the period were $32.2 million.

• Operating loss was $6.2 million.

See the discussion and analysis below for additional details regarding our segments' operating results.

STORES

The following table presents stores opened and closed during the first quarter
of 2012 and the first quarter of 2011:
                                                     U.S.   Canada   Total
2011
  Stores open at the beginning of the fiscal year   1,398        -  1,398
  Stores opened during the period                       9        -      9
  Stores closed during the period                      (2 )      -     (2 )
     Stores open at the end of the period           1,405        -  1,405
2012
  Stores open at the beginning of the fiscal year   1,451       82  1,533
  Stores opened during the period                      10        -     10
  Stores closed during the period                      (7 )      -     (7 )
     Stores open at the end of the period           1,454       82  1,536

We continue to expect to open 90 new stores and close 45 existing locations in the U.S. during 2012.

RESULTS OF OPERATIONS

The following table compares components of our consolidated statements of
operations as a percentage of net sales at the end of each period:

                                                   First Quarter
                                                 2012          2011
Net sales                                         100.0  %     100.0  %
Cost of sales (exclusive of depreciation
expense shown separately below)                    60.4         59.7
Gross margin                                       39.6         40.3
Selling and administrative expenses                32.3         31.5
Depreciation expense                                2.0          1.7
Operating profit                                    5.3          7.0
Interest expense                                    0.0          0.0
Other income (expense)                              0.0          0.0
Income from continuing operations before
income taxes                                        5.3          7.0
Income tax expense                                  2.1          2.7
Income from continuing operations                   3.2          4.3
Discontinued operations                             0.0          0.0
Net income                                          3.1  %       4.3  %

FIRST QUARTER OF 2012 COMPARED TO FIRST QUARTER OF 2011

U.S. Segment

Net Sales
Net sales by merchandise category, as a percentage of total net sales, and net
sales change in dollars and percentage from the first quarter of 2012 compared
to the first quarter of 2011 were as follows:
                                  First Quarter
                          2012                   2011                 Change
(in thousands)
Consumables       $   377,933   30.0 %   $   375,481   30.6 %   $  2,452    0.7  %
Furniture             286,904   22.7         258,519   21.1       28,385   11.0
Home                  191,177   15.1         183,891   15.0        7,286    4.0
Seasonal              173,405   13.8         169,337   13.8        4,068    2.4
Play n' Wear          134,087   10.6         144,919   11.8      (10,832 ) (7.5 )
Hardlines & Other      98,729    7.8          95,127    7.7        3,602    3.8
 Net sales        $ 1,262,235  100.0 %   $ 1,227,274  100.0 %   $ 34,961    2.8  %

In the third quarter of 2011, we realigned our merchandise categories to be consistent with the realignment of our merchandising team and changes to our management reporting. Prior to the third quarter of 2011, we reported sales in the former Hardlines category and the former Other category. We moved the electronics department out of the former Hardlines category and repositioned it in the former Other category, which was renamed Play n' Wear. We also moved the results of certain large closeout deals that are typically acquired through our alternate product sourcing operations out of the former Other category and repositioned them in the former Hardlines category, which was renamed Hardlines & Other. We reclassified the results of prior periods to reflect this realignment of our merchandise categories for comparability.

Net sales increased $35.0 million, or 2.8%, to $1,262.2 million in the first quarter of 2012, compared to $1,227.3 million in the first quarter of 2011. The increase in net sales was principally due to the net addition of 49 stores since the end of the first quarter of 2011, which increased net sales by $44.0 million, partially offset by a 0.8% decrease in comparable store sales for stores open at least fifteen months, which decreased net sales by $9.0 million. The Furniture category had the largest sales gains during the first quarter of 2012, with mattresses and upholstery being the primary drivers, as we had positive customer response during tax refund selling season. The increase in the Home category was led by the domestics department, where new initiatives to expand the Home category's square footage positively impacted sales. The primary driver of the increase in the Hardlines & Other category was an attractive assortment of branded closeout merchandise primarily in our small appliances department. The Seasonal category increase was primarily due to our lawn & garden department, partially offset by lower Spring holiday sales. The Consumables category experienced lower than expected sales in our food and health and beauty departments, partially offset by our expanded offerings in specialty foods. The decrease in the Play n' Wear category was primarily driven by lower sales in our apparel, infant, lingerie, and toys departments, which were partially offset by increased sales in our electronics department.

Based on the sales trends exiting the first quarter of 2012 and the beginning weeks of May, we expect comparable store sales to be slightly positive to slightly negative during the second quarter of 2012.

Gross Margin
Gross margin dollars increased $6.8 million, or 1.4%, to $500.9 million for the first quarter of 2012, compared to $494.1 million for the first quarter of 2011. The increase in gross margin dollars was principally due to higher net sales of $35.0 million, which increased gross margin dollars by approximately $14.1 million, partially offset by a lower gross margin rate, which decreased gross margin dollars by approximately $7.3 million. Gross margin as a percentage of net sales decreased 60 basis points to 39.7% in the first quarter of 2012, compared to 40.3% in the first quarter of 2011. The gross margin rate decrease was principally due to the impact of the change in accounting principle related to our merchandise inventories of $5.6 million, or 40 basis points, a slightly higher markdown rate, and higher fuel costs and the corresponding impact on inbound freight.

In the second quarter of 2012, we expect our gross margin rate will be higher than the second quarter of 2011, as we expect a lower markdown rate in 2012 as compared to 2011.

Selling and Administrative Expenses
Selling and administrative expenses were $401.5 million for the first quarter of 2012, compared to $387.2 million for the first quarter of 2011. The increase of $14.4 million, or 3.7%, was primarily due to increases in store occupancy expenses of $4.8 million, store payroll expense of $3.0 million, advertising expense of $3.0 million, health benefit expenses of $1.5 million, and share-based compensation expense of $1.3 million. The increases in store payroll and store occupancy expenses were primarily due to the net increase of 49 stores compared to the end of the first quarter of 2011. Advertising expense increased as a result of the increased store count, new signage initiatives, and certain testing initiatives to support future programs. The increase in share-based compensation expense was primarily driven by the higher valuation of awards granted in 2011 as compared to 2010, due to the appreciation of our stock price between grant dates.

As a percentage of net sales, selling and administrative expenses increased 30 basis points to 31.8% for the first quarter of 2012 compared to 31.5% for the first quarter of 2011.

In the second quarter of 2012, we expect our selling and administrative expenses as a percentage of net sales will increase compared to the second quarter of 2011. We expect an increase in spend associated with additional store occupancy costs, higher advertising spend, and higher incentive and share-based compensation expenses.

Depreciation Expense
As expected, depreciation expense increased $3.7 million to $24.4 million in the first quarter of 2012, compared to $20.7 million for the first quarter of 2011. The increase is directly related to our new store growth, investments in systems, including SAP® for Retail, and capital spending to support and maintain our stores and distribution centers. Depreciation expense as a percentage of sales increased by 20 basis points compared to the first quarter of 2011.

During the balance of 2012, we expect that depreciation expense will increase as compared to 2011 as we spend the remaining forecasted capital expenditures associated with new store openings and maintenance of existing stores and distribution centers. Capital expenditures continue to be forecasted in the range of $130 million to $135 million for 2012.

Canadian Segment

Our Canadian segment's net sales were $32.2 million, which exceeded our original expectations of $25 million to $30 million. Our operating loss was $6.2 million compared to a forecasted loss of $6 million to $8 million. Net sales were positively impacted by growing inventory levels, improved quality and breadth of assortments, and strong customer demand for newly introduced consumable products, seasonal, and furniture merchandise.

Other Performance Factors

Interest Expense
Interest expense was $0.3 million in the first quarter of 2012, compared to $0.5 million in the first quarter of 2011. The decrease was driven by lower amortization of deferred bank fees on our 2011 Credit Agreement in the first quarter of 2012 as compared to deferred bank fees on our 2009 Credit Agreement in the first quarter of 2011. We had total average borrowings (including capital leases) of $17.2 million in the first quarter of 2012 compared to total average borrowings of $1.8 million in the first quarter of 2011. The increase in total average borrowings from the first quarter of 2011 to the first quarter of 2012 was the result of us beginning 2012 with $65.9 million of outstanding borrowings under the 2011 Credit Agreement, compared to zero borrowings outstanding under the 2009 Credit Agreement during the first quarter of 2011.

Income Taxes
The effective income tax rate for the first quarter of 2012 and the first quarter of 2011 for income from continuing operations was 40.5% and 38.9%, respectively. The higher rate was primarily due to a valuation allowance relative to the deferred tax benefit of the loss generated by our Canadian segment and the effect of U.S. income taxes on a lower pretax income base (driven by the loss generated by our Canadian segment). The rate increase was partially offset by the effect of a net increase in favorable discrete U.S. state income tax items associated with settlement activity.

Capital Resources and Liquidity
On July 22, 2011, we entered into the 2011 Credit Agreement. The 2011 Credit Agreement is scheduled to expire on July 22, 2016. In connection with our entry into the 2011 Credit Agreement, we paid bank fees and other expenses in the aggregate amount of $3.0 million, which are being amortized over the term of the agreement. Borrowings under the 2011 Credit Agreement are available for general corporate purposes, working capital, and to repay certain of our indebtedness, including amounts due under the 2009 Credit Agreement. The 2011 Credit Agreement includes a $10 million Canadian swing loan sublimit, a $30 million U.S. swing loan sublimit, $150 million letter of credit sublimit, and a $200 million Canadian revolving credit loan subfacility. The interest rates, pricing and fees under the 2011 Credit Agreement fluctuate based on our debt rating. The 2011 Credit Agreement allows us to select our interest rate for each borrowing from multiple interest rate options. The interest rate options are generally derived from the prime rate, LIBOR, or CDOR. We may prepay revolving loans made under the 2011 Credit Agreement. The 2011 Credit Agreement contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens and investments, as well as the maintenance of two financial ratios - a leverage ratio and a fixed charge coverage ratio. A violation of any of the covenants could result in a default under the 2011 Credit Agreement that would permit the lenders to restrict our ability to further access the 2011 Credit Agreement for loans and letters of credit and require the immediate repayment of any outstanding loans under the 2011 Credit Agreement. At April 28, 2012, we were in compliance with the covenants of the 2011 Credit Agreement.

The primary source of our liquidity is cash flows from operations and, as necessary, borrowings under the 2011 Credit Agreement. Our net income and, consequently, our cash provided by operations are impacted by net sales volume, seasonal sales patterns, and operating profit margins. Our net sales are typically highest during the nine-week Christmas selling season in our fourth fiscal quarter. Generally, our working capital requirements peak late in our third fiscal quarter or early in our fourth fiscal quarter. We have typically funded those requirements with borrowings under our credit facility. At April 28, 2012, we had no borrowings under the 2011 Credit Agreement and the borrowings available under the 2011 Credit Agreement were $643.1 million, after taking into account the reduction in availability resulting from outstanding letters of credit totaling $56.9 million. We anticipate through September 15, 2012, that total indebtedness under the 2011 Credit Agreement will peak at less than $200 million, which includes outstanding letters of credit and the estimated impact of cash needs of Big Lots Canada, but excludes the impact of any common share purchases under the 2012 Repurchase Program.

Cash provided by operating activities increased by $0.1 million to $125.6 million in the first quarter of 2012 compared to $125.5 million in the first quarter of 2011.

Cash used in investing activities decreased by $1.1 million to $18.0 million in the first quarter of 2012 compared to $19.1 million in the first quarter of 2011. The decrease was primarily due to a decrease of $0.9 million in capital expenditures to $18.3 million in the first quarter of 2012 compared to $19.2 million in the first quarter of 2011.

Cash used in financing activities increased by $93.5 million to $93.6 million in the first quarter of 2012 compared to $0.1 million in the first quarter of 2011. The primary drivers of cash used in financing activities in the first quarter of 2012 were our share repurchase activities and our repayment of borrowings under the 2011 Credit Agreement. In the first quarter of 2012, we acquired $98.5 million of our common shares under the 2011 Repurchase Program, of which we had settled $62.1 million in cash by April 28, 2012, and repaid $65.9 million of indebtedness under our 2011 Credit Agreement. Our share repurchase activity and repayments of debt were partially offset by cash received from the exercise of stock options of $32.3 million and the associated tax benefits of $7.8 million.

On a consolidated basis, we expect cash provided by operating activities less capital expenditures to be approximately $190 million for 2012.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its estimates, judgments, and assumptions, and bases its estimates, judgments, and assumptions on historical experience, current trends, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. See note 1 to our consolidated financial statements included in our 2011 Form 10-K for additional information about our accounting policies.

The estimates, judgments, and assumptions that have a higher degree of inherent uncertainty and require the most significant judgments are outlined in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2011 Form 10-K. Had we used estimates, judgments, and assumptions different from any of those discussed in our 2011 Form 10-K or below, our financial condition, results of operations, and liquidity for the current period could have been materially different from those presented.