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Updated Research Report on Big Lots

Zacks Equity Research

We issued an updated research report on Big Lots Inc. (BIG) following the company’s dismal fourth-quarter fiscal 2013 results.

Big Lots reported adjusted earnings of 98 cents per share, down 53% year over year. Including deferred tax benefit of 41 cents, Big Lots’ earnings from continuing operations was $1.39 for the fourth quarter, down 33.2% from the prior-year quarter. The Zacks Consensus Estimate for the quarter was $1.39 per share.

Adjusted consolidated net sales decreased 6.2% year over year to $1,636.3 million but was ahead of the Zacks Consensus Estimate of $1,606 million.

Big Lots now projects adjusted earnings per share from continuing operations to be 40–45 cents for the first-quarter fiscal 2014 while comparable store sales (comps) are expected to range from slightly positive to slightly negative. For fiscal 2014, Big Lots expects adjusted earnings from continuing operations in the band of $2.25–$2.45 per share. Comps are expected to range from flat to a rise of 2%. Net sales are expected to range from flat to a marginal fall.

The tepid outlook triggered a downtrend in the Zacks Consensus Estimate. The Estimate for first-quarter fiscal 2014 fell 18.5% to 44 cents while for fiscal 2014, it fell 3.2% to $2.42 per share.

Moreover, waning comps and sluggish sales of discretionary items remain causes of concerns. Apart from this, Big Lots operates in a highly competitive discount retail merchandise sector with players like Family Dollar Stores Inc. (FDO) and Dollar Tree, Inc. (DLTR), which is quite challenging.  

However, Big Lots is striving to reinstate itself on the growth trajectory after a dismal run. The company is focusing on furniture financing program as well as the food and consumables category as both continue to gain traction. The furniture business is likely to be extended to most of the stores (1,300 stores or 85%) as the business has experienced high single digit to low double digit increases in the last six months, thereby making it a profitable option.

Further, the food and consumable category has displayed strong same-store sales (up in mid single digits) for the past two quarters, which makes it a profitable avenue as well.

Moreover, to regain momentum, the company has undertaken initiatives such as store remodeling, “Edit to Amplify” merchandising strategy and developing its e-Commerce capabilities to cater to the changing trends.

Big Lots is also exiting from the unprofitable Canadian markets to focus on its core domestic operations. By first-quarter fiscal 2014, the company expects to shut down all primary operations and stores in Canada and report these as "discontinued". We consider its exit from Canada to be favorable, which will likely drive future performance.

Also, Big Lots’ board recently approved a share buyback program of $125 million, which will cushion the bottom line going forward and enhance shareholders’ value.

Currently, Big Lots carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Another stock worth considering in the sector is Burlington Stores, Inc. (BURL), which has a Zacks Rank #2 (Buy).

Read the Full Research Report on FDO
Read the Full Research Report on DLTR
Read the Full Research Report on BIG
Read the Full Research Report on BURL


Zacks Investment Research

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