Big Lots Inc. (BIG - Analyst Report) reported second-quarter fiscal 2013 consolidated adjusted earnings of 31 cents a share that comfortably surpassed the Zacks Consensus Estimate of 25 cents and came above management’s earlier guidance of 17 cents to 27 cents. However, it declined 13.9% year over year.
Excluding Canadian operations, adjusted earnings from the U.S. operations came in at 37 cents per share, down 11.9% year over year.
Consolidated net sales increased 0.6% year over year to $1,225.6 million but missed the Zacks Consensus Estimate of $1,229 million. Consolidated comparable-store sales declined 1.9%. Net sales for its U.S. operations inched up 0.4% to $1,187.7 million during the quarter. However, U.S. comparable-store sales declined 2.2%.
In order to better compete with bigger industry rivals like Target Corp. (TGT - Analyst Report), Wal-Mart Stores Inc. (WMT - Analyst Report) and Dollar General Corporation (DG - Analyst Report),Big Lots commenced its Canadian operations after the company completed the acquisition of Liquidation World Inc. Sales at its Canadian operations increased 8.2% to $37.9 million, while comparable-store sales registered growth of 8.3%.
Big Lots registered a marginal increase in gross profit to $479.5 million, whereas gross margin contracted 10 basis points to 39.1%. Adjusted operating income plunged 18.3% to $32.1 million, while operating margin contracted approximately 60 basis points to 2.6%. The decline in margins reflected increased markdowns and higher marketing expenses.
Guidance Chopped Again
The company for the second time in fiscal 2013 has lowered its guidance. On a consolidated basis, Big Lots expects adjusted earnings in the range of $2.80 – $3.05 per share for fiscal 2013, down from its earlier guidance range of $2.87 – $3.12 per share. Net sales are expected to remain flat or increase by 1%, while comparable-store sales are expected to remain flat or decrease by 1%. Earlier, the company forecasted net sales to increase in the range of 1% – 2%.
For its U.S. operations, adjusted earnings are forecasted in the range of $3.05 – $3.20 per share. U.S. comparable store sales are expected to remain flat or decrease by 1%, while total sales are expected to remain flat or ascend by 1%.
In Canada, total sales are expected in the range of $165 million – $173 million, down from its previous range of $175 million – $185 million. Comparable store sales are expected to increase in the range of 7% to 12%. Big Lots expects its Canadian operations to report loss per share in the range of 15 cents – 25 cents. This projected loss is wider than its earlier guidance range of 8 cents – 13 cents loss per share.
On a consolidated basis, the company expects to report a loss in the range of 5 cents – 13 cents for the third quarter, while it expects earnings to be in the range of $2.05 – $2.15 for the fourth quarter.
For the third quarter, Big Lots expects to report loss of 3 cents or earnings of 2 cents per share at its U.S. operations. Comparable store sales are expected to decline by 2% or remain flat. Gross margin is likely to remain high when compared with the prior-year quarter.
For the fourth quarter, the U. S. business is expected to report earnings in the range of $2.02 – $2.12 per share, while comparable store sales are expected to remain flat or increase by 2%. Gross margin is expected to increase.
In Canada, sales are expected to be in the range of $40 million – $43 million, while, management anticipates loss per share of 7 cents – 10 cents for the third quarter. For the fourth quarter, Canadian sales are expected to be in the range of $50 million – $55 million, and bottom-line ranging from a breakeven to 5 cents a share.
During the quarter, Big Lots opened 13 stores while it closed 4 in the U.S., ending the quarter with 1,514 stores.
In Canada, Big Lots rebranded 2 stores. The company ended the quarter with 79 stores. Going forward, the company plans to open 2 new Big Lots stores in Canada.
Other Financial Details
This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $63.8 million, inventories of $913.7 million and shareholders’ equity of $817.6 million. The company, at the end of the quarter, had $141.7 million in its long-term obligations under the bank credit facility and incurred capital expenditures of $34.4 million. The company expects to generate $175 million in cash flow in fiscal 2013.