Big Lots Beats Earnings, Guides Low

Zacks

Big Lots Inc. (BIG) reported second-quarter fiscal 2013 consolidated adjusted earnings of 31 cents a share that comfortably surpassed the Zacks Consensus Estimate of 25 cents and came above management’s earlier guidance of 17 cents to 27 cents. However, it declined 13.9% year over year.

Excluding Canadian operations, adjusted earnings from the U.S. operations came in at 37 cents per share, down 11.9% year over year.  

Consolidated net sales increased 0.6% year over year to $1,225.6 million but missed the Zacks Consensus Estimate of $1,229 million. Consolidated comparable-store sales declined 1.9%. Net sales for its U.S. operations inched up 0.4% to $1,187.7 million during the quarter. However, U.S. comparable-store sales declined 2.2%.

In order to better compete with bigger industry rivals like Target Corp. (TGT), Wal-Mart Stores Inc. (WMT) and Dollar General Corporation (DG),Big Lots commenced its Canadian operations after the company completed the acquisition of Liquidation World Inc. Sales at its Canadian operations increased 8.2% to $37.9 million, while comparable-store sales registered growth of 8.3%.

Big Lots registered a marginal increase in gross profit to $479.5 million, whereas gross margin contracted 10 basis points to 39.1%. Adjusted operating income plunged 18.3% to $32.1 million, while operating margin contracted approximately 60 basis points to 2.6%. The decline in margins reflected increased markdowns and higher marketing expenses.

Guidance Chopped Again

The company for the second time in fiscal 2013 has lowered its guidance. On a consolidated basis, Big Lots expects adjusted earnings in the range of $2.80 – $3.05 per share for fiscal 2013, down from its earlier guidance range of $2.87 – $3.12 per share. Net sales are expected to remain flat or increase by 1%, while comparable-store sales are expected to remain flat or decrease by 1%. Earlier, the company forecasted net sales to increase in the range of 1% – 2%.

For its U.S. operations, adjusted earnings are forecasted in the range of $3.05 – $3.20 per share.  U.S. comparable store sales are expected to remain flat or decrease by 1%, while total sales are expected to remain flat or ascend by 1%.

In Canada, total sales are expected in the range of $165 million – $173 million, down from its previous range of $175 million – $185 million. Comparable store sales are expected to increase in the range of 7% to 12%. Big Lots expects its Canadian operations to report loss per share in the range of 15 cents – 25 cents.  This projected loss is wider than its earlier guidance range of 8 cents – 13 cents loss per share.

On a consolidated basis, the company expects to report a loss in the range of 5 cents – 13 cents for the third quarter, while it expects earnings to be in the range of $2.05 – $2.15 for the fourth quarter. 

For the third quarter, Big Lots expects to report loss of 3 cents or earnings of 2 cents per share at its U.S. operations. Comparable store sales are expected to decline by 2% or remain flat. Gross margin is likely to remain high when compared with the prior-year quarter.

For the fourth quarter, the U. S. business is expected to report earnings in the range of $2.02 – $2.12 per share, while comparable store sales are expected to remain flat or increase by 2%. Gross margin is expected to increase.

In Canada, sales are expected to be in the range of $40 million – $43 million, while, management anticipates loss per share of 7 cents – 10 cents for the third quarter. For the fourth quarter, Canadian sales are expected to be in the range of $50 million – $55 million, and bottom-line ranging from a breakeven to 5 cents a share.

Stores Update

During the quarter, Big Lots opened 13 stores while it closed 4 in the U.S., ending the quarter with 1,514 stores.

In Canada, Big Lots rebranded 2 stores. The company ended the quarter with 79 stores. Going forward, the company plans to open 2 new Big Lots stores in Canada.

Other Financial Details

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $63.8 million, inventories of $913.7 million and shareholders’ equity of $817.6 million. The company, at the end of the quarter, had $141.7 million in its long-term obligations under the bank credit facility and incurred capital expenditures of $34.4 million. The company expects to generate $175 million in cash flow in fiscal 2013.

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