Big Lots, Inc.’s (BIG) turnaround initiatives have started to gain significant traction as reflected from its second-quarter fiscal 2014 results.
The company posted earnings from continuing operations of 31 cents per share, a penny ahead of the Zacks Consensus Estimate. Apart from beating earnings estimates, the company witnessed growth in comparable-sales for the second straight quarter, after 8 consecutive quarters of decline. Comps for the quarter were up 1.7% driven by the furniture, food and consumables categories.
Big Lots remains focused on the furniture financing program as well as the food and consumables categories, as these continue to gain traction. Roll out of furniture financing to 1,300 stores was completed in June. Moreover, the category registered high-single-digit comps growth in the second quarter and has high single to low double-digit increases in the last several months, which makes it a profitable option.
Further, the food and consumable categories, which have displayed strong comps for the last few quarters, appear to be profitable avenues. In the quarter, food comps were up in the high-single digits whereas consumables grew in the mid-single digits. Moreover, to tap the opportunities presented by these two categories, management has been adding more brands and has revamped its food department by giving it a fresh look to make shopping convenient for customers.
Also, the company has been actively rolling out cooler/freezer facility to expand merchandise of food-related items to target food stamp recipients. The company remains on track to extend this facility to 600 stores by the end of September and take the total count to 725 stores before the fourth quarter, to benefit from the crucial holiday season. These initiatives are likely to boost comps and revenues going forward.
Moreover, much to investors’ delight, Big Lots announced another $125 million worth of share repurchases and declared its first-ever quarterly dividend, underscoring shareholder wealth maximization as its top priority.
In our view, pulling back from Canada was a brilliant move as it now allows full focus on domestic operations. However, an uncertain macroeconomic backdrop and subsequent pressure on discretionary spending will continue to generate considerable resistance. In addition, competition from mass merchandisers like Wal-Mart Stores Inc. (WMT) and online retailers like Amazon.com Inc. (AMZN), which have drastically altered the retail landscape, will make things rather difficult for relatively smaller retailers.
At present, Big Lots is a Zacks Rank #3 (Hold) stock. A better-ranked retail stock worth consideration is Burlington Stores, Inc. (BURL), which sports a Zacks Rank #1 (Strong Buy).
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