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Robust omni-channel efforts and solid transformation initiatives have been working in favor of Big Lots, Inc. BIG. The company has been gaining from its transformation plan, referred to as Operation North Star, which encompasses driving top-line growth, cost containment, and enhancement in systems and infrastructure. Moreover, strength in its e-commerce business coupled with impressive store strategy appears encouraging.
Incidentally, the Columbus, OH-based company’s shares have surged 55.6% in the past three months against the industry’s 1.3% drop. This outperformance is also attributed to Big Lots’ stellar fourth-quarter fiscal 2020 results with the top and the bottom line increasing year over year and surpassing the Zacks Consensus Estimate. Performance mainly benefited from solid comparable sales (comps) growth across most categories. Sturdy e-commerce and omni-channel sales further drove results.
As a result, management expects low-single digit rise in comps during first-quarter fiscal 2021. Moreover, total sales are expected to grow approximately 80 basis points (bps), higher than the rise in comparable sales. Based on the comps growth assumption, the company anticipates earnings in the range of $1.30-$1.45 versus $1.26 reported in the prior-year quarter. Accordingly, analysts also look optimistic about the company. The Zacks Consensus Estimate for its first-quarter and fiscal 2021 earnings is currently pegged at $1.44 and $5.59, respectively. These estimates rose from $1.35 and $5.48, respectively, in the past 30 days.
Delving deeper into Big Lots’ strategies, the company is on track with its pantry optimization efforts. It includes allotting expanded space for consumables, including cleaning products as well as health and beauty. Moreover, the strategy incorporates combining competitively-priced national brands along with an increasing assortment of close-outs. Also, the company is focusing on optimizing floor space available in stores through its Queue Line project.
Talking of the company’s store initiatives, the Store of the Future initiative looks appealing. The positive sales trends in these store formats (Store of the Future and new stores) are being backed by bigger basket as well as higher transactions. Also, its Lot and Queue Line store endeavor has been successful. Overall, management projects opening 50-60 stores, of which nearly 20 are likely to be relocations in the same fiscal.
Furthermore, The company has launched same-day delivery through Instacart. It has integrated web and store capabilities to drive enhanced returns, pricing, consistency and order visibility. Markedly, during 2020, the company introduced curbside pickup, same-day delivery in partnership with Instacart and same-day delivery with biglots.com with pickup. The company’s Instacart and pickup delivery services continue to accelerate during the fourth quarter, making a significant contribution to overall e-commerce-driven growth. We note that the company’s e-commerce and omni-channel sales grew more than 130% year over year and contributed 300 bps toward overall comps. Its Rewards program has also been robust.
Despite these strengths, the company has not been spared by the coronavirus pandemic. Consequently, it has been incurring higher expenses in relation to the pandemic. In fiscal 2020, the company incurred more than $50 million in COVID-related expenses, including health and safety measures as well as incremental pay bonuses to stores and distribution center associates. Management expects to keep incurring such expenses in 2021, however, at a lower level. It also witnessed soft store traffic as well as supply chain and inventory-related challenges during the fiscal fourth quarter.
Nonetheless, we expect Big Lots’ stock to maintain momentum on the back of its solid endeavors and strength in digital capabilities. Going forward, management expects to navigate through the challenges in the business environment given the Operation North Star strategy and solid focus on boosting assortments and customer services. Moving on, a VGM Score of A with an expected long-term earnings growth rate of 11.2% for this Zacks Rank #3 (Hold) further build optimism.
Key Picks in Retail
Abercrombie & Fitch ANF has a long-term earnings-growth rate of 18% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
L Brands LB, also a Zacks Rank #1 stock, has a long-term earnings-growth rate of 13%.
Tapestry TPR has an expected long-term earnings growth rate of 10% and currently has a Zacks Rank #2 (Buy).
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Big Lots, Inc. (BIG) : Free Stock Analysis Report
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