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Big Lots (BIG) Stock Gains on Q2 Earnings & Revenue Beat

Zacks Equity Research

Big Lots, Inc. BIG second-quarter fiscal 2019 marked the third straight quarter of positive earnings surprise. The bottom line also surpassed the management’s guided range, courtesy of better expense management. On the top-line front, the company outpaced the Zacks Consensus Estimate for the second straight quarter.

Better-than-expected results prompted management to issue an encouraging outlook for third-quarter fiscal 2019. As a result, shares the company increased 20% in the pre-market trading session. However, the stock has declined 23.9% year to date against the industry’s 34.1% growth.

We believe the company’s encouraging outlook for the third quarter and its meaningful progress on the front of Store of the Future initiative along with increased focus on Rewards loyalty program and e-commerce business will provide much-needed cushion to the stock.

Let’s Delve Deeper

This Columbus, OH-based company posted adjusted earnings of 53 cents a share, which surpassed the Zacks Consensus Estimate of 40 cents. The bottom line also exceeded its earlier guidance of 35-45 cents. However, the metric came below 59 cents reported in the prior-year quarter.

Net sales grew 2.5% to $1,252.4 million and marginally came ahead of the Zacks Consensus Estimate of $1,251 million. The top line increased on account of solid comparable store sales and sales growth in high volume new stores, partly offset by reduced store count year over year.

Comparable store sales improved 1.2% and came in line with the company’s prior guidance of low-single-digit increase. This marked the fifth successive quarter of comparable store sales growth.

Gross profit increased 1.4% year over year to $498.2 million, while gross margin contracted 40 basis points to 39.8%. In the reported quarter, adjusted SG&A expenses came in at $455 million, up 6.7% year over year, while the same (as a percentage of net sales) rose 140 basis points to 36.3%.

Adjusted operating income came in at $32.6 million, down 63.8% from the prior-year quarter. Meanwhile, operating margin contracted 100 basis points to 2.6% in the quarter under review.

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 $53.7 million. Inventories increased 2.3% to $874.1 million. Total shareholders’ equity was $644.5 million.

Management stated that increases in inventory was due to “moving forward inventory commitments to support earlier resets of new assortments in the key categories of Furniture and Soft Home, and the slower than anticipated sell through of seasonally sensitive product in Q2 largely due to weather. This growth was partially offset by a lower store count year-over-year.”

Long-term obligations under the bank credit facility totaled $467.8 million, up from $324.7 million in the prior-year period.

Year to date, the company has returned about $75 million to its shareholders in the form of share repurchases and dividend. Management anticipates cash flow of approximately $75 million for fiscal 2019, up from the earlier estimate of $65 million.

Guidance

Big Lots now expects third-quarter adjusted loss to be 15-25 cents a share compared with a loss of 16 cents incurred in the year ago period. The Zacks Consensus Estimate for the bottom line stands at a loss of 33 cents. The company anticipates comparable store sales of nearly flat.

For fiscal 2019, management continues to expect adjusted earnings of $3.70-$3.85 per share. However, the guided range is still below the prior-year’s reported figure of $4.04. The Zacks Consensus Estimate for earnings in the fiscal year is pegged at $3.76. The company projects comparable store sales for fiscal 2019 to increase flat to slightly positive.

Check These 3 Trending Stocks

Tuesday Morning Corporation TUES has an average positive earnings surprise of 25.4% in the trailing four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, Inc. BURL has an average positive earnings surprise of 8.7% in the trailing four quarters and a Zacks Rank #2 (Buy).

Target Corporation TGT has an average positive earnings surprise of 4.6% in the trailing four quarters. The company carries a Zacks Rank of 2.

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