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Big Lots (BIG) Up on Q1 Earnings Beat, Updated FY19 View

Zacks Equity Research

Shares of Big Lots, Inc. BIG rose 6.1% during the trading session on May 31, after it reported better-than-expected first-quarter results. The company commenced fiscal 2019 on a strong note with both sales growth and comparable store sales coming in line with expectations and bottom-line surpassing management’s guided range, driven by better expense management.

The company is making meaningful progress on the front of Store of the Future initiative along with increased focus on Rewards loyalty program and e-commerce business. Quarterly results and strategic endeavors prompted the company to raise fiscal 2019 earnings view.

Let’s Delve Deeper

This Columbus, OH-based company posted adjusted earnings of 92 cents a share that surpassed the Zacks Consensus Estimate of 69 cents and also came above its earlier guidance for earnings of 65-75 cents. However, the bottom line came below 95 cents reported in the prior-year quarter.

Net sales grew 2.2% to $1,295.8 million, and marginally came ahead of the Zacks Consensus Estimate of $1,289.3 million. The top line increased on account of comparable store sales and sales growth in high volume new stores, partly offset by reduced store count year over year. Furniture, Soft Home, Seasonal and Consumables drove sales higher.

Comparable store sales improved 1.5%, and came in line with the company’s prior guidance of low-single digit increase. This marked the fourth successive quarter of comparable store sales growth.

With respect to merchandising categories Furniture, Seasonal and Soft Home were up mid-single digits. We note that consumables category was up low-single digits, while Hard Home and Electronics, Toys & Accessories and Food were down.

Adjusted gross profit increased 2.6% year over year to $525.1 million, while gross margin expanded 10 basis points to 40.5%. In the reported quarter, adjusted SG&A expenses came in at $438 million, up 2.4% year over year, while as a percentage of net sales the same deleveraged 10 basis points to 33.8%.

Adjusted operating income came in at $54.3 million, down 2.8% from the prior-year quarter. Meanwhile, operating margin contracted 20 basis points to 4.2% in the quarter.

Big Lots, Inc. Price, Consensus and EPS Surprise


Big Lots, Inc. Price, Consensus and EPS Surprise

Big Lots, Inc. price-consensus-eps-surprise-chart | Big Lots, Inc. Quote

Other Financial Details

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $63.6 million. Inventories were up 9.1% to $927 million. Total shareholders’ equity was $648.3 million.

Management informed that increases in inventory was due to “general impact of tariffs on higher first cost of merchandise, our intentional decision to move forward inventory commitments in key categories of Furniture and Soft Home to support earlier resets of fresh, new product, and the slower than anticipated sell through of seasonally sensitive product in Q1 largely due to weather.”

Long-term obligations under the bank credit facility totaled $470.4 million, up from $174 million in the prior-year period. This was due to the timing of share buyback activity, higher strategic investments, and the timing of increased inventory levels. Big Lots’ incurred capital expenditures of roughly $77 million during the quarter.

During the quarter under review, the company has returned about $61 million to shareholders with $13 million in the way of dividends and $48 million in the form of share repurchases. We note that the company has exhausted $50 million share repurchase authorization approved in March 2019. Management anticipates adjusted cash flow of approximately $100 million for fiscal 2019.

Store Updates

In the quarter, Big Lots opened nine outlets and shuttered six taking the total to 1,404 stores. Going ahead, it intends to open 50 new or relocated stores and remodel more than 200 stores in fiscal 2019.


Big Lots now expects second-quarter adjusted earnings to be 35-45 cents a share compared with 59 cents reported in the year ago period. The Zacks Consensus Estimate for the quarter currently stands at 41 cents.

The company projects low to mid single-digit growth in sales and low single digit increase in comparable store sales. Gross margin is likely to be marginally down during the second quarter owing to higher markdown.

For fiscal 2019, management now expects adjusted earnings per share to be $3.70-$3.85, up from the earlier view of $3.55-$3.75. However, the updated range is still below the prior year period’s reported figure of $4.04. The Zacks Consensus Estimate for the fiscal is pegged at $3.64. The company projects low-single digit increase in both sales and comparable store sales for fiscal 2019.

Check These 3 Trending Stocks

PriceSmart PSMT has an average positive earnings surprise of 20.7% in the trailing four quarters. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Kimberly-Clark Corporation KMB has an average positive earnings surprise of 2.1% in the trailing four quarters and a Zacks Rank #2.

Walmart WMT has an average positive earnings surprise of 7.3% in the trailing four quarters. The company carries a Zacks Rank #2.

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