Big Lots (BIG) Q3 Loss Narrower Than Expected, Revenues Fall Y/Y
Big Lots, Inc. BIG reported an adjusted loss of $4.38 per share for third-quarter fiscal 2023, narrower than the Zacks Consensus Estimate of a loss of $4.71. The metric was wider than the year-ago quarter’s adjusted loss of $2.99 per share.
Net sales of this Columbus, OH-based player declined 14.7% to $1,026.7 million year over year and missed the consensus estimate of $1,032 million. The year-over-year downside was due to soft comparable sales. Comparable sales fell 13.2% year over year. Also, the net decrease in store count contributed nearly 150 basis points (bps) of sales decline from the third quarter of fiscal 2022. Quarterly results were hurt by the extremely tough environment.
Nevertheless, management is on track to accomplish more than $100 million of selling general and administrative (SG&A) cost savings for the year. Project Springboard has kicked off a solid start and is likely to deliver $200 million of bottom-line gains, spanning the gross margin and SG&A, of which a greater proportion is expected to be realized on a run-rate basis by 2024 end. It has also been taking actions to control costs. The company anticipates generating substantial free cash flow and significantly lowering outstanding debt in the upcoming quarter.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have increased 14.5% compared to the industry’s 7.8% rise.
More on Results
Gross profit dropped 8.7% year over year to $373.8 million. However, Big Lots’ gross margin increased 240 bps to 36.4% from the year-ago quarter’s figure of 32.6%. We had expected a gross margin expansion of 200 bps in the quarter.
Big Lots, Inc. Price, Consensus and EPS Surprise
Big Lots, Inc. price-consensus-eps-surprise-chart | Big Lots, Inc. Quote
In the reported quarter, adjusted SG&A expenses were $454.5 million, down 5.6% year over year. As a percentage of net sales, the metric increased 430 bps to 39.8%. We anticipated SG&A expenses, as a rate of sales, to increase 550 bps in the quarter.
The company recorded an adjusted operating loss of $113.9 million in the reported quarter compared with an adjusted operating loss of $207.6 million. We expected an adjusted operating loss of $133.9 million for the quarter under review.
Other Financial Details
Big Lots ended the quarter with cash and cash equivalents of $46.6 million and long-term debt of $533 million. Total shareholders’ equity was $313.2 million. Inventories decreased to $1,177.3 million from $1,345.3 million recorded in the prior-year period.
For the 39 weeks that ended Oct 28, 2023, BIG used net cash worth $399.1 million from operating activities.
During the reported quarter, the company completed the sale and leaseback of its Apple Valley, CA distribution center and 23 owned stores, with gross proceeds of $306 million. It received net proceeds of about $302 million. Big Lots used $101 million of the net proceeds to completely pay down its synthetic lease on the Apple Valley, CA distribution center and the balance to provide additional liquidity.
The company did not make any share repurchases during the quarter. It had $159 million remaining under its $250 million authorization.
BIG concluded the quarter with more than 1,420 stores across 48 states.
Outlook
For the fiscal fourth quarter, management anticipates comps to improve from the third quarter and be in the high-single-digit negative range. The 53rd week is likely to contribute about 400 bps of sales benefit year over year, partly offset by a decline in store count with an adverse impact of about 300 bps of sales.
Big Lots expects the gross margin to improve to nearly 38% on lower markdown activity, reduced freight costs, cost control and productivity efforts. The company expects adjusted SG&A to decline in the low-single-digit percentage compared with 2022. Management has not yet provided earnings per share guidance but expects the Q4 adjusted operating result to be better than the last year.
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