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Big Lots (BIG) Strong on Omni-Channel & Transformation Efforts

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Robust omni-channel efforts and gains from transformation initiative including the Operation North Star are consistently acting in favor of Big Lots, Inc. (BIG - Free Report) . The company is experiencing strong e-commerce growth, buoyed by the success of the “Buy Online Pick-up In Store” functionality and curbside pickup. Also, the company’s same-day service in collaboration with Instacart seems profitable. Further, its store-growth strategies are consistently contributing to its performance.

Coming to the company’s Operation North Star strategy, it focuses on driving its top line, executing cost containment and enhancing its systems and infrastructure. This initiative also aims at streamlining the company’s cost structure. Management also remains committed to expanding the Broyhill brand, which is on track to become a $1-billion w0th brand. Impressively, shares of this Columbus, OH-based company have surged 97.8% in the past year, outperforming the industry’s 37.1% rally.

This share price upsurge is also attributed to the company’s stellar performance that continued in first-quarter fiscal 2021 wherein both the top and the bottom line outpaced the Zacks Consensus Estimate and grew year over year as well. Results were driven by strength in the company’s underlying Operation North Star initiative and a positive customer response to the third round of stimulus distributions. Also, the company witnessed a double-digit increase at all its merchandise categories except for Food and Consumables. As it moves through the fiscal second quarter, it sees growth in its core underlying business, aided by the Operation North Star strategic initiatives.

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Let’s Delve Deeper

Speaking of the omni-channel initiatives further, we note that Big Lots integrated web and store capabilities to boost returns, pricing, consistency and order visibility. Additionally, it looks to reinforce the payment-type choices on sites including Apple and GooglePay. Its Rewards program also appears robust.

During the fiscal first quarter, the company’s e-commerce business surged 30% while its Rewards program achieved a record high of 21.4 million members, growing 12% year over year. More than 72% of quarterly sales came from rewards membership, reflecting growth of 800 basis points (bps) year over year. It witnessed continued increases in traffic and conversion.

Moreover, the company’s Store of the Future strategy is worth a mention. The company looks to enhance in-store experience. For instance, given strength in its furniture assortment, management has been testing new sales and staffing model in about 35 stores for a while now. Impressively, it is seeing steady double-digit sales growth across such stores. Thus, it remains on track to expand the program to a broader group of pilot stores in the next few months with the potential to roll out the same in fiscal 2022. For fiscal 2021, management anticipates opening about 50-60 stores, of which 20 will be relocations. Additionally, the company’s Lot and Queue Line strategies augur well.

Wrapping Up

Well, all the aforesaid factors raise optimism in the stock. However, increased freight costs have been bothering Big Lots for a while now and compressing its gross margin. Accordingly, the metric is likely to contract nearly 200 bps in the fiscal second quarter due to macro headwinds in freight and certain mix impact from pantry optimization. Adverse freight effects and supply-chain disruptions are likely to linger throughout the fiscal year.

Nonetheless, the company is on course to deliver and surpass $30 million of structural expense savings in fiscal 2021. This will bring its cumulative savings under Operation North Star to more than $130 million. Further, we believe, all the aforementioned business strategies will contribute to the company’s performance. Big Lots currently has a Zacks Rank #3 (Hold).

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