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Will Big Lots' (BIG) Growth Efforts Propel the Stock in 2017?

Zacks Equity Research

You must take a look at the retailer, Big Lots, Inc. BIG, as it has emerged as a solid investment choice amid a competitive retail landscape. Moreover, its growth initiatives are progressing well and have aided the company to continue with its positive earnings surprise streak. Also, the stock has an impressive long-term earnings growth rate of 13.5%.

Let’s Delve Deeper

Big Lots’ furniture financing programs as well as its food and consumables categories have been consistently gaining traction. Notably, response has been impressive for furniture financing, as this has been the leading performer in the past few quarters. In addition, the company has been expanding assortments in this category by including lawn and garden items like patio furniture, gazebos and gas grills.

In order to tap opportunities, management added more brands and revamped the food department by giving it a fresh look. Further, the company rolled out its cooler/freezer facility in stores, in an attempt to expand its merchandise of food-related items to target food stamp recipients. Moreover, the company has been focusing on store refurbishment. We believe that these initiatives should boost revenues and overall profitability, alongside enhancing customers’ shopping experience.

Meanwhile, the company has witnessed constant improvement in its gross margin in the past four years, which is considered as an important financial metrics and gives an indication about the company’s health. Alongside, Big Lots also undertakes measures to maximize its investors’ wealth.

BIG LOTS INC Price and Consensus

BIG LOTS INC Price and Consensus | BIG LOTS INC Quote

All these factors have helped Big Lots to post positive earnings surprise in six out of seven straight quarters, as it reported third-quarter fiscal 2016 results. Notably the company has outperformed the Zacks Consensus Estimate by an average of 83% for the trailing four quarters. Following the sturdy performance, management raised its fiscal 2016 earnings view, which is anticipated in the band of $3.55–$3.60 per share versus $3.45–$3.55, guided earlier.

Consequently, estimates moved north over the past 60 days. The Zacks Consensus Estimate has increased 2% to $3.60 for fiscal 2016 and 1.3% to $3.98 for fiscal 2017, during the same time frame.

In spite of these growth drivers, there remain other major concerns for the company. Big Lots’ top line has missed the Zacks Consensus Estimate in five out of seven quarters in a row. Moreover, in the fiscal third quarter, sales declined on a year-over-year basis due to lower store count. Lower discretionary spending, economic threat and competitive pressure further weighed upon the company’s performance.

Bottom Line

Despite these pros and cons, this Zacks Rank #3 (Hold) stock has outperformed the Zacks categorized Retail-Discount and Variety industry, which occupies space in the top 50% of the Zacks Classified industries. In the past one year, the company’s shares have surged 36.8% compared with the Zacks categorized industry’s gain of 6.4%.

Key Picks

Some better-ranked stocks in the broader retail space include Burlington Stores, Inc. BURL, The Children's Place, Inc. PLCE and Ross Stores, Inc. ROST.

Burlington Stores, with a long-term earnings growth rate of 19.9%, has skyrocketed 103.3% in the past one year. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children's Place, a Zacks Rank #1 stock, has surged 35.9% in the past three months. Moreover, it has a long-term earnings growth rate of 10.3%

Ross Stores, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 10.5%. Also, it has gained 18% in the past six months.

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CHILDRENS PLACE (PLCE): Free Stock Analysis Report
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