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Big Lots (BIG) Q3 Loss Wider Than Expected, Revenues Miss

Shares of Big Lots, Inc. BIG fell nearly 9% at the close of the trading session on Dec 1, following the weak third-quarter fiscal 2022 results. Results were affected by the challenging macroeconomic environment.

However, the company made efforts to stay afloat during the quarter via cost-management actions and strengthening the balance sheet. It has been on track to transform its business by offering amazing deals, particularly in toys, home appliances and soft home, as well as improved assortments.

Notably, the company reported a wider-than-expected loss of $2.99 for third-quarter fiscal 2022, comparing unfavorably with the Zacks Consensus Estimate of a loss of $2.39 per share and our estimate of a loss of $2.79. The metric was also wider than the year-ago quarter’s loss of 14 cents.

Net sales of this Columbus, OH-based player declined 9.8% to $1,204 million year over year. The figure lagged the Zacks Consensus Estimate of $1,212 million and our estimate of $1,218.8 million. The year-over-year downside was due to soft comparable sales. Comparable sales fell 11.7%. Also, rising inflation, stemming from macroeconomic uncertainty, which led consumers to reduce discretionary purchases, hurt sales. Net new stores and relocations contributed roughly 190 basis points (bps) to sales.

In the past three months, shares of BIG have declined 15.5% against the industry’s 10.1% growth.

 

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Zacks Investment Research


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More on Results

The E-commerce business was solid in the reported quarter. On a year-to-date basis, the metric grew 12%, accounting for 7% of its sales. Some notable efforts in this space include multiple same-day and next-day delivery options, ship-from-store service, extended aisle assortment in its shipping channels, the introduction of payment options such as Paypal and Apple Pay, reducing friction at checkout, and improved inventory.

Gross profit declined 21% year over year to $409.5 million and lagged our estimate of $425.7 million. Big Lots’ gross margin contracted 490 bps to 34% from the year-ago quarter’s figure of 38.9% due to the adverse impacts of higher markdowns and freight costs.

In the reported quarter, selling and administrative expenses were $481.3 million, with the metric (as a percentage of net sales) being 40%. The metric lagged our estimate of $493.1 million. BIG recorded an adjusted operating loss of $109.1 million in the reported quarter, wider than our estimate of a loss of $105.6 million.

Other Financial Details

Big Lots ended the quarter with cash and cash equivalents of $62.1 million, and long-term debt of $459.9 million. Total shareholders’ equity was $782.2 million. Inventories increased to $1,345.3 million from $1,277.2 million in the prior-year quarter.

For 39 weeks ended Oct 29, 2022, BIG used net cash worth $279 million from operating activities. Capital expenditure for the quarter was $38 million. For 2022, the metric is likely to be $170 million compared with the prior mentioned $160 million.

On Sep 21, 2022, the company completed the refinancing and replacement of its $600-million senior unsecured credit facility with a new $900-million five-year revolving asset-based loan facility.

Also, management declared a quarterly dividend of 30 cents, payable Dec 28, 2022, to shareholders of record as of the close of business on Dec 14, 2022. The company did not repurchase any shares in the quarter. It has $159 million remaining under its existing $250-million authorization.

Big Lots, Inc. Price, Consensus and EPS Surprise

 

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

Store Update

This Zacks Rank #3 (Hold) company opened 20 stores and shut down three stores in the quarter, bringing the total store count to 1,457 stores. It also revealed plans to sell 25 owned stores by the end of this year or early 2023. BIG expects to open more than 50 stores and close 50 or more stores, including the outright sale of 25 owned stores, in 2022.

Outlook

Management expects the top-line performance to remain challenging. For the fiscal fourth quarter, it anticipates comps to decline in the low-double-digit range. Net new stores will contribute nearly 170 bps to growth compared with the fiscal 2021 reported figure.

Big Lots anticipates a sequential gross-margin improvement for the fourth quarter, resulting in a gross margin rate in the mid-30s. The gross margin is likely to be hurt by additional markdowns related to accelerated store closures and continued efforts to reduce inventory.

Also, SG&A expenses are likely to remain flat year over year due to accelerated depreciation from fourth-quarter store closures, higher occupancy costs, elevated outbound transportation costs and costs related to two incremental forward distribution centers. That said, the company did not issue any bottom-line guidance.

Stocks to Consider

Here are three better-ranked stocks to consider, namely Wingstop WING, Dollar General DG and Chipotle Mexican Grill CMG.

Wingstop currently sports a Zacks Rank #1 (Strong Buy). WING has a long-term earnings growth rate of 11%. Shares of WING have declined 9.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the year-ago period’s reported levels.

Dollar General, a discount retailer, currently carries a Zacks Rank #2 (Buy). DG has an expected EPS growth rate of 11.1% for three to five years.

The Zacks Consensus Estimate for Dollar General’s current financial-year revenues and EPS suggests growth of 10.8% and 13.8%, respectively, from the year-ago reported figures. DG has a trailing four-quarter earnings surprise of 2.2%, on average.

Chipotle Mexican Grill, an operator of fast-casual restaurants, currently carries a Zacks Rank of 2. CMG’s expected EPS growth rate for three to five years is 23.4%.

The Zacks Consensus Estimate for Chipotle Mexican Grill’s current financial-year revenues and EPS suggests growth of 15.2% and 30.8%, respectively, from the year-ago reported figures. CMG has a trailing four-quarter earnings surprise of 4.1%, on average.

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