Big Lots Inc. (BIG), which operates as a broad line closeout retailer in the United States, recently posted second-quarter 2011 results, and updated its fiscal 2011 earnings outlook.
Street analysts had nearly a week to ponder over the company’s scores. In the paragraphs that follow, we cover the recent earnings announcement, subsequent estimate revisions by the analysts as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Report Review
Columbus, Ohio based company, Big Lots, on August 25, 2011, delivered second-quarter 2011 results. The quarterly earnings of 50 cents a share increased 4.2% from 48 cents earned in the prior-year quarter. However, excluding, the impact of new Canadian operations, earnings for the quarter came in at 52 cents a share.
The quarterly earnings also beat the Zacks Consensus Estimate of 45 cents. The earnings also surpassed management’s previously provided guidance range of 38 cents to 48 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.
Total revenue for the quarter inched up 2.2% to $1,167.1 million, which also came ahead of the Zacks Consensus Estimate of $1,158 million. However, comparable-store sales inched down 1.5% compared with the prior-year quarter.
(Read our full coverage on this earnings report: Big Lots Beats, Lifts Outlook)
Agreement of Estimate Revisions
In the last 7 days, 8 out of 12 analysts covering the stock lowered their estimates, with none raising theirs for third-quarter 2011. For the fourth quarter, 8 analysts raised their estimates, while only 1 analyst lowered the same.
For fiscal 2011, 6 analysts moved their estimates downwards with 2 increasing the same. For fiscal 2012, 6 analysts raised their estimates with only 2 revising the estimate downwards in the last 7 days.
Magnitude of Estimate Revisions
For third-quarter 2011, the Zacks Consensus Estimate fell by 8 cents to 13 cents, whereas for the fourth quarter, it rose by 4 cents to $1.59 in the last 7 days.
For fiscal 2011, the Zacks Consensus Estimate dropped by 2 cents to $2.87, and for fiscal 2012, it jumped by 4 cents to $3.32 in the last 7 days.
Big Lots in Neutral Lane
Big Lots’ closeout format provides it an edge over traditional discount retailers as it offers merchandise assortments to customers at very low prices. The company buys brand merchandise at lower costs from vendors who have excess inventory and resort to a fire sale of their goods, have higher sales returns or discontinued products.
Big Lots has been exploring numerous options to enter the Canadian turf, which ended with the acquisition of Liquidation World Inc. that operates approximately 89 stores and offers a broad assortment of closeout merchandise. Management believes the acquisition to be accretive to its top line in the coming years, while generating long-term growth prospects for the company. The company also remains focused on enhancing its store operations capacity.
Big Lots is also 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 the March 2010 program. The company had $58 million left under its previous program.
However, during the second quarter, 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. Year-to-date, it incurred $313 million to repurchase 9.7 million shares at an average price of $32.28. The company currently has $145 million left under its newly announced $400 million program.
Big Lots operates in a highly competitive discount retail business. Therefore, loss of market share, fall in sales and operating margins are major threats. Competitors having more stores, greater market presence, and financial resources will continue to weigh on the company’s results.
Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their disposable income, and in turn the company’s growth and profitability.
Currently, we maintain our long-term Neutral recommendation 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.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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