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Analyst Blog

On Jun 13, 2014, we issued an updated research report on Big Lots Inc. (BIG - Analyst Report).

The company recently posted better-than-expected first-quarter fiscal 2014 earnings of $0.50 per share. The earnings came ahead of the Zacks Consensus Estimate of $0.44 but fell 28.6% year over year.

Moreover, the company’s top line climbed 1.1% year over year to $1,281.3 million, surpassing the Zacks Consensus Estimate of $1,267.0 million. The company also posted positive comps after 8 consecutive quarters of negative comps. Comps for the quarter were up 0.9%.

Big Lots is focusing on the furniture financing program as well as on the food and consumables category as both continue to gain traction. The furniture business is likely to be extended to most of the stores (1,300 stores or 85% of the total store count) as it has experienced high single to low double-digit increases continually over the past quarters, which makes it a profitable option.

Also, the company’s exit from its unprofitable Canadian operations is likely to be a favorable move. Big Lots pulled out of Canada in first-quarter fiscal 2014 and reported the operation as “discontinued”.

This will enable the company to concentrate more on other areas such as developing its e-commerce and omni-channel capacities. We believe that other initiatives undertaken by Big Lots such as store remodeling, changes in its loyalty reward program, and the ‘Edit to Amplify’ merchandising strategy will fuel further growth.

However, lingering macroeconomic headwinds and sluggish discretionary spending might run down all its turnaround activities. Stiff competition adds to the woes of the company, compelling us to be on the sidelines.

Big Lots currently has a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked retail stocks worth investing in include Aaron's, Inc. (AAN - Snapshot Report), Citi Trends, Inc. (CTRN - Analyst Report) and Build-A-Bear Workshop Inc. (BBW - Snapshot Report), each carrying a Zacks Rank #1 (Strong Buy).

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