Shares of Big Lots Inc. BIG declined 10.1% during the trading session on Aug 31, following the company’s disappointing second-quarter fiscal 2018 results. Further, earnings and sales lagged estimates for the second and fourth straight quarter, respectively. On top of it, the updated guidance for fiscal 2018 is discouraging. This has resulted in a stock decline of 22.2% in the past six months against the industry’s growth of 18.6%.
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Let’s Delve Deeper
This Columbus, OH-based company posted adjusted earnings of 59 cents a share, lagging the Zacks Consensus Estimate of 67 cents. Further, the figure also declined 12% from the year-ago quarter. It fell short of the company’s earlier guidance of 60-70 cents for the quarter under review.
The company’s top line also witnessed the same fate. Net sales of $1,222.2 million fell short of the Zacks Consensus Estimate of $1,233 million. We note that the company missed sales estimates in six of the seven trailing quarters. However, the figure was slightly up 0.2% from the year-ago period, on the back of positive comparable sales (comps) that partially offset lesser store openings year over year. Comps were up 1.6% compared with the company’s guided range of flat to up 2% marginally.
While the company’s gross profit decreased 0.2% year over year to $491.4 million, gross margin contracted 20 basis points to 40.2%. This was due to high seasonal markdown rate, partially offset by favorable merchandise mix and reduced shrink costs. In the reported quarter, SG&A expenses came in at $426.6 million, up 2.8% year over year.
Operating profit totaled $34.3 million compared with $48 million in the prior-year quarter. Operating margin contracted 110 basis points to 2.8%.
Big Lots, Inc. Price, Consensus and EPS Surprise
Other Financial Details
This Zacks Rank #3 (Hold) company ended the reported quarter with cash and cash equivalents of $58 million. Inventories were up 5.4% to $854 million. Total shareholders’ equity at the end of the reported quarter was $605.7 million. Long-term obligations under the bank credit facility totaled $324.7 million. The company’s capital expenditures for the quarter were $58 million compared with $31.1 million last year.
In the reported quarter, the company returned $12 million in the form of dividends in September. The company bought back 2.4 million shares worth $100 million.
In the quarter under review, Big Lots opened four outlets and shut five. It ended the quarter with a total number of 1,415 stores.
Guidance
For the fiscal 2018, adjusted earnings per share are projected to be $4.40-$4.55 compared with the earlier guidance of $4.50-$4.70 and $4.45 per share recorded in the year-ago quarter. the Zacks Consensus Estimate is pegged at $4.55, which is in sync with the company’s high-end of the projection, and might witness a downward revision. However, we still believe that the guidance does not raise enthusiasm.
The company continues to expect comps to increase 1% in the third quarter. Moreover, the company expects cash flow generation of nearly $100-$110 million compared with $110-$120 million expected earlier.
Big Lots issued third and fourth quarter guidance. For the fiscal third quarter, management expects bottom line to be in the range of a loss of 6 cents to earnings of 4 cents compared with 6 cents reported in the prior-year quarter. Comps are expected to be up 2-4% in the next quarter. The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at 1 cent per share. Gross margin for the quarter is expected to remain flat or decline slightly from the prior-year quarter.
Additionally, the company anticipates comps to rise low-single digit in the fourth quarter. For the fourth quarter, earnings are forecasted to be in the range of $2.90-$3.00 per share, up from $2.57 cents reported in the prior-year quarter.
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