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Big Lots (BIG) Stock Gains on Earnings & Sales Beat in Q1

Zacks Equity Research

Shares of Big Lots, Inc. BIG jumped 5.6% during the trading session on May 29, backed by impressive first-quarter fiscal 2020 results. Both the top and the bottom line outpaced the Zacks Consensus Estimate and grew year over year. With this, the company’s earnings and revenues reverted to a positive surprise trend after lagging the consensus estimate in the previous quarter.

In addition, the company saw a solid start to the fiscal second quarter. Management further believes to efficiently navigate through the coronavirus chaos. The company is confident about its Operation North Star strategies.

Impressively, shares of Big Lots have increased 126.3%, steering past the industry’s 0.3% rise over the past three months.



Q1 in Detail

This Columbus, OH-based company reported adjusted earnings of $1.26 a share, surpassing the Zacks Consensus Estimate of 41 cents. Moreover, the bottom line improved nearly 37% year over year. Higher sales coupled with lower SG&A expense fueled the bottom line.

Net sales edged up 11.1% to $1,439.1 million and outshined the Zacks Consensus Estimate of $1,332 million on higher comparable sales (comps) and sales growth from new and relocated non-comp stores. During March, sales grew low double-digits as consumers stocked up on essentials. Impressively, comps increased 10.3% in the reported quarter.

Gross profit increased about 10% year over year to $570.8 million, while gross margin contracted 80 basis points (bps) to 39.7%. The drop in gross margin can be attributed to higher shrink expenses and a shift in product mix toward lower-margin categories of food and consumables.

In the reported quarter, S&A expenses came in at $458.6 million, down 0.4% year over year. Moreover, the metric (as a percentage of net sales) declined 360 bps from the prior-year quarter to 31.9%.

Furthermore, operating profit came in at $74.4 million, up from adjusted operating profit of $54.3 million in the prior-year quarter. Moreover, operating margin came in at 5.2%, up 100 bps from the year-ago quarter’s adjusted tally.

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 #2 (Buy) company ended the quarter with cash and cash equivalents of $311.9 million. Inventories declined 13% to $806.6 million due to robust sales for most merchandise categories. Long-term debt totaled $436.7 million, down 7.2% from $470.4 million in the prior-year quarter. Total shareholders’ equity was $883.9 million.

During the reported quarter, the company provided net cash of $146.1 million from operating activities. Further, management drew additional amounts from its revolving credit facility to deal with the coronavirus crisis.

During the fiscal first quarter, the company bought back roughly 244,000 shares for $50 million before the suspension of the share repurchase program. It had $348 million remaining on its share repurchase program. Concurrently, management announced a quarterly cash dividend of 30 cents per share, payable on Jun 26, 2020, to shareholders of record as on Jun 12.

Guidance

Big Lots has been seeing strong comps since the start of the second quarter on continued business acceleration since mid-April. However, it expects comp trends to moderate during the rest of the quarter, thanks to other retailers’ reopening, planned cancellation of the Friends and Family event, inventory restraints across some categories and abatement of stimulus-driven demand.

Further, management envisions earnings per share in the band of 65-80 cents, assuming flat comps growth with the first quarter. This view incorporates expected pre-tax costs with respect to COVID-19 of roughly $18 million and unfavorable pre-tax impact from the anticipated closing of the sale and leaseback transaction of nearly $7 million. However, the outlook excludes the anticipated gain on sale from the transaction. The Zacks Consensus Estimate for the bottom line is pegged at 31 cents per share, which is likely to witness upward revisions in the coming days.

For fiscal 2020, management estimates capital expenditures of $130-$140 million, reflecting a decrease from $160-$270 million expected earlier.

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