Big Lots Inc. (BIG) recently posted better-than-expected second-quarter 2011 results. The quarterly earnings of 52 cents a share came ahead of the Zacks Consensus Estimate of 45 cents, and increased 8.3% from 48 cents earned in the prior-year quarter.
However, on a reported basis, including one-time items, earnings came in at 50 cents a share.
Management now expects fiscal 2011 earnings between $2.80 and $2.90 per share compared with its earlier guidance range of $2.75 and $2.90.
Big Lots operates as a broad line closeout retailer in the United States. The company offers food, health, beauty, plastic, paper, chemical and pet products as well as home decorative products, besides other product lines.
The company’s closeout format provides it an edge over traditional discount retailers as it offers merchandise assortments to customers at very low prices. Total revenue for the quarter inched up 2.2% to $1,167.1 million, which also came ahead of the Zacks Consensus Revenue Estimate of $1,158 million. However, comparable-store sales inched down 1.5% compared with the prior-year quarter.
Big Lots, the operator of 1,415 stores, announced that operating profit for the quarter fell 5.4% to $59.8 million, whereas operating margin shriveled 40 basis points to 5.1%. The reduction reflected abridged comparable store sales and gross margin shrinkage, partly offset by expense leverage.
Major Buybacks to Entice Shareholders
Big Lots is returning much of its free cash to shareholders via share repurchases. After authorizing a share repurchase of $400 million in March 2010, Big Lots in May 2011 authorized an additional $400 million, subject to completion of March 2010 program. The company had $58 million left under its previous program.
However, during the quarter under review, Big Lots completed its March 2010 program and began its new share repurchase program by spending $236 million to repurchase 7.2 million shares at an average price of $32.67 per share.
Moreover, for the third quarter of 2011, Big Lots incurred $77 million to buyback 2.5 million shares at an average price of $31.11 per share. Year-to-date, it incurred $313 million to repurchase 9.7 million shares at an average price of $32.28 per share. The company currently has $145 million left under its newly announced $400 million program.
Green Signal to Canadian Operations
During the quarter under review, Big Lots started its Canadian operations with 89 stores and 1000 committed associates, after the company completed the acquisition of Liquidation World, Inc.
For its first overseas outpost, Big Lots paid $20 million in cash apart from acquiring certain liabilities and fulfilling the company’s debt obligations. The company acquired all outstanding shares of Liquidation World while gaining all its assets and leasehold rights.
Big Lots has been exploring numerous options for more than two years for entering the Canadian turf and is expecting the acquisition to be accretive to its top line in the coming years, while generating long-term growth prospects for the company.
The company remains focused to enhance its store operations capacity, while boosting its manpower. Going with this strategy, Big Lots also announced two executive level appointments for gratifying the hard work of its employees. Joe R. Cooper was appointed as the president of Big Lots Canada, while Timothy A. Johnson was promoted as the Senior Vice President of Finance as well as appointed to the company's Executive Committee.
New Credit Facility Announced
Moreover, to proficiently support its Canadian operations, Big Lots announced a new five-year, $700 million unsecured revolving credit facility, including C$200 million sub-facility. The newly announced facility will replace the previous $500 million credit facility, which is set to expire in April 2012.
Other Financial Details
The Columbus, Ohio-based Big Lots ended the quarter with cash and cash equivalents of $57.8 million and shareholders’ equity of $816.5 million. The company at the end of the quarter had borrowings of $60 million under its credit facility. During the reported quarter, the company opened 15 new stores.
Big Lots reduced its Cash Flow guidance to $145 million (including cash outflow for the Canadian operations) from its earlier guidance of $185 million.
Currently, we have a long-term Neutral rating on the stock. Moreover, Big Lots, which competes with Target Corporation (TGT), holds a Zacks #3 Rank, which translates into a short-term Hold rating.
BIG LOTS INC (BIG): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment