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Big Lots (BIG) Stock Tumbles Despite Q3 Earnings & Sales Beat

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Zacks Equity Research
·5 min read
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Shares of Big Lots, Inc. BIG tumbled 11.1% during the trading session on Dec 4 despite a stellar third-quarter fiscal 2020 performance. The company’s top and bottom line outpaced the Zacks Consensus Estimate and grew year over year.

During the fiscal third quarter, the company continued the rollout of its Operation North Star strategies, with the re-configuration of the Food and Consumables categories. Also, it has been advancing its online merchandise assortment offering via the implementation of ship-from-store. In addition, the rollout of the Broyhill brand, the launch of Lot and Queue Line programs and e-commerce capabilities are impressive. Also, its detailed planning for the early holiday shopping has been paying off. Going forward, Big Lots is poised to maneuver the current environment given strength in its customer service coupled with everyday essentials and stay-at-home products. It witnessed a robust start to the fourth quarter but the business is likely to moderate.

On Mar 30, 2020, management withdrew its fiscal 2020 view. It expects to issue business updates in early January with greater visibility.

Q3 in Detail

This Columbus, OH-based company reported adjusted earnings of 76 cents per share, surpassing the Zacks Consensus Estimate of 65 cents. Moreover, the bottom line compared favorably with a loss of 18 cents seen in the prior-year quarter.

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

Net sales grew 18% to $1,377.9 million and beat the Zacks Consensus Estimate of $1,351 million on robust comparable sales (comps) and higher sales from new and relocated non-comp stores, offset by a slight dip in store count year over year.

Impressively, comps grew 17.8% in the reported quarter on a slight rise in store traffic, e-com traffic growth of more than 50% and robust increase in basket at both channels. The company saw solid Halloween and harvest selling in August and September as well as sturdy early Christmas selling in mid-September through October. In total, e-com and omni-channel demand rose 70% year over year, contributing nearly 170 basis points (bps) to overall comps.

Gross profit jumped 20.4% year over year to $557.9 million and gross margin expanded 80 bps to 40.5%. Gross margin was boosted by a lower markdown rate and an overall mix gain mitigated by increased freight costs lapping certain tariff rebates from the year-ago quarter and a marginal impact from the pantry-optimization initiative. For the fiscal fourth quarter, gross margin is likely to remain almost flat year over year on reduced markdown benefit, offset by escalated freight costs and a higher impact from pantry optimization.

In the reported quarter, selling and administrative expenses came in at $482.3 million, up 10.4% year over year. However, the metric (as a percentage of net sales) declined to 35% from the prior-year quarter’s tally of 37.4%.

Furthermore, operating profit came in at $42.5 million, down from $170.5 million recorded in the prior-year quarter. Moreover, operating margin came in at 3.1% compared with 14.6% in the year-ago quarter.

Other Financial Details

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $547.8 million. Inventories decreased nearly 3% to $1,089.1 million due to robust sales across all merchandise categories. Long-term debt totaled $39.4 million compared with $501.1 million in the prior-year quarter. Total shareholders’ equity was $1,256.3 million.

At the end of the reported quarter, inventory on hand at the company’s stores declined mid-teen percentage. For the fiscal fourth quarter, inventory, including in-transit, is expected to be closer to flat owing to acceleration in early first-quarter receipts stemming from the Chinese New Year.

As of Oct 31, 2020, the company used net cash of $201 million from operating activities. Capital expenditures totaled $34 million in the reported quarter and $103 million year to date. For fiscal 2020, capital expenditures are anticipated between $150 million and $160 million.

Furthermore, management bought back 2.2 million shares in the quarter worth $100 million under its earlier-announced $500 million worth of share repurchase program. Concurrently, the company's board announced a fourth-quarter cash dividend of 30 cents a share. This dividend is payable on Dec 30, 2020, to shareholders of record as on Dec 16.

In the reported quarter, Big Lots opened 13 outlets and shuttered six, bringing the total store count to 1,411. For fiscal 2020, management projects store base of 1,408, including 24 openings and 20 closings. The company has also been prioritizing the rollout of the Lot and the Queue line and projects adding more 450 stores by the end of first-quarter fiscal 2021.

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