Big Lots Misses, Lowers Outlook

Big Lots Inc. ( BIG - Analyst Report ) reported second-quarter 2012 earnings of 36 cents a share that missed the Zacks Consensus Estimate of 42 cents and plunged 28% from 50 cents earned in the year-ago quarter. Excluding the Canadian operations, earnings came in at 42 cents.

Quarter Details

Total revenue came in at $1,218 million, up 4.4% from the prior-year period. However, the reported revenue also missed the Zacks Consensus Estimate of $1,240 million.

Net sales for U.S. operations inched up 1.7% year over year to $1,183 million during the quarter. However, comparable store sales for the U.S. stores decreased 1.9%.

During the quarter under review, Canadian operations net sales came in at $35 million. Big Lots commenced its Canadian operations with 89 stores and 1000 committed associates, after the company completed the acquisition of Liquidation World Inc.

The company has been exploring numerous options for over two years in order to foray into the Canadian market. Big Lots expects the acquisition to be accretive to its top line in the coming years, while generating long-term growth for the company.

Gross profit for the quarter increased 3.8% year over year to $477.8 million, whereas gross margin declined 30 basis points to 39.2%. Operating profit marked a significant decline of 34.2% year over year to $39.3 million, whereas operating margin decreased 190 basis points to 3.2%, reflecting a rise in SG&A expenses as a percentage of sales.

Guidance Lowered

Sluggish results forced management to lower its guidance for the second time during the current fiscal. The company now expects earnings in the range of $2.80 to $2.95 a share on a consolidated basis for fiscal 2012, down from its prior guidance range of $3.25 to 3.40.

For U.S. operations, adjusted earnings are forecasted to be in the range of $3.05 to $3.15 a share, down from its earlier guidance range of $3.50 to $3.60.

For fiscal 2012, the company expects U.S. comparable store sales to decline in the low single digit range, while total U.S. sales are expected to ascend by 3% to 4%. The company earlier forecasted comparable store sales to remain flat or increase by 1%, while total U.S. sales were expected to augment by 5.5% to 6.5%.

Moreover, for fiscal 2012, Canadian sales are forecasted to be in the range of $152 to $158 million with operating loss of $13 to $15 million.

Share Buybacks

Big Lots is returning much of its free cash to shareholders via share repurchases. Besides, it authorized a $200 million share repurchase program in May 2012. During the quarter under review, Big Lots spent $149 million to repurchase 4 million shares. Year-to-date, the company repurchased shares worth $254 million and has $45 million remaining under its current share repurchase program.

Other Financial Details

Based in Columbus, Ohio, Big Lots ended the quarter with cash and cash equivalents of $61.7 million and shareholders’ equity of $690 million. The company, at the end of the quarter, had $242.8 in its long-term obligations under bank credit facility.

At the end of the quarter, net cash provided by operating activities was $88.7 million. Management projects cash flow of $125 million for fiscal 2012.

Big Lots, which operates as a broad-line closeout retailer in the United States, offers food, health, beauty, plastic, paper, chemical and pet products as well as home decorative products, besides other product lines.

Currently, we have a long-term ‘Underperform’ rating on the stock. However, Big Lots, which competes with Target Corporation ( TGT - Analyst Report ) , holds a Zacks #3 Rank, translating into a short-term ‘Hold’ rating.