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Big Lots (BIG) Provides Q4 Updates, Outlines Cost Concerns

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Zacks Equity Research
·4 min read
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Big Lots, Inc. BIG provided updates regarding fourth-quarter fiscal 2020 results. Quarter to date, the company informed that it has achieved growth in comparable sales. Accordingly, it updated earnings view for the to-be-reported quarter, which is below analysts’ expectations. Higher operating expenses, including freight costs, are likely to hamper the bottom line. Let’s look into the details of the announcement.

Q4 Sales Highlights Look Encouraging

Quarter-to-date Big Lots achieved comparable sales (comps) growth of nearly 7.5%. The upside indicates double-digit comps across all merchandising categories, except seasonal and food. The food category is up in low single digits, while the seasonal category is down in mid-teens percentage owing to reduced levels of Christmas inventory in December. Moreover, e-commerce demand on a quarter-to-date basis was up nearly 135%. Management expects to continue witnessing accelerated sales trends in January, and for the quarter as a whole. As a result, it expects comps to rise slightly from the current quarter-to-date rate.

The Zacks Consensus Estimate for fiscal fourth-quarter 2020 sales is currently pegged at $1,763 million, suggesting a rise of nearly 9.7%. Higher Comps are likely to have a positive impact on the top line in the quarter to be reported.

Q4 Earnings View Fails to Charm

Despite growth in comparable sales, lower-than-expected earnings view was a disappointment. Management expects earnings in the fourth quarter between $2.40 and $2.50. The Zacks Consensus Estimate for earnings in the fourth quarter is currently pegged at $3.03. In the year-ago quarter, the company’s bottom line amounted to $2.39.

Management’s earnings view for the to-be-reported quarter is based on expectations of a flat year-on-year gross margin rate. Gross margin is expected to benefit from lower markdowns, offset by adverse impacts of freight costs. Notably, freight costs were induced by transportation capacity constraints and distribution centre backlogs, thanks to restoration of inventory and pandemic-led labor shortages. The bottom-line view also takes into consideration higher operating expenses. Markedly, operating expenses are up by nearly the same amount as in the third quarter of fiscal 2020. Operating expenses also take into account the additional expenses related to sale and leaseback of its distribution centers, increased bonus and stock compensation as well as additional expenses related to COVID-19. Such rises in operating costs are likely to affect the bottom line in the fourth quarter.

The earnings view also considers share repurchases of 1.2 million, worth approximately $55.7 million. Management has $344 worth shares remaining under its existing repurchase authorization of $500 million.

Wrapping Up

Management highlighted that softer-than expected traffic in December, reduced levels of Christmas seasonal inventory as well as extraordinary supply chain circumstances are headwinds. Nevertheless, it is optimistic regarding the improvements in sales trends seen in January.

We note that management expects strong double digit comps and earnings close to double the $3.67 reported last year. Markedly, the Zacks Consensus Estimate for fiscal 2020 earnings is currently pegged at $7.79.

Shares of this Zacks Rank #3 (Hold) company have gained 29.6% in the past six months compared with the industry’s rise of 27.6%.

Looking For Retail Stocks? Check These

Target Corporation TGT, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 8.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar General Corporation DG, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 24.6%, on average.

Walmart Inc. WMT, also with a Zacks Rank #2, has a long-term earnings growth rate of 5.5%.

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