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Big Lots' (BIG) Q2 Loss Narrower than Expected, Revenues Fall Y/Y

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Big Lots, Inc.(BIG - Free Report) reported a narrower-than-expected loss of $2.28 for second-quarter fiscal 2022, comparing favorably with the Zacks Consensus Estimate of a loss of $2.39 per share. The metric compared unfavorably with earnings per share (EPS) of $1.09 reported in the year-ago quarter.

Net sales of this Columbus, OH-based player dropped 7.6% to $1,346.2 million year over year and came below the Zacks Consensus Estimate of $1,352 million. The year-over-year downside was due to soft comparable sales. Comparable sales fell 9.2%. However, the three-year comparable sales increase rate was 3.6% in the reported quarter, representing acceleration from 1.9% in the preceding quarter. Net new stores and relocations contributed roughly 160 basis points (bps) to sales. Quarterly results were hurt by the volatility caused by the macroeconomic environment.

So far this year, shares of this currently Zacks Rank #3 (Hold) Big Lots have decreased 22.5% compared with the industry’s 12.1% fall.

More on Results

E-commerce business was solid in the reported quarter, increasing 35% and accounting for about 7% of the total business. The conversion rate online also improved 50 basis points (bps) in the reported quarter. Within e-commerce, same-day delivery rose above 80% and BIG’s offerings expanded with new partnerships with DoorDash and Shipped. Also, Big Lotsis constantly removing friction across the e-commerce channel with navigation, access to deals and better cart and checkout. Management is focused on the Operation North Star strategy.

Gross profit declined 24.1% year over year to $438.5 million. Big Lots’ gross margin contracted 700 bps to 32.6% from the year-ago quarter’s figure of 40.2%. Supply-chain impacts hurt gross margin and SG&A.

In the reported quarter, selling and administrative expenses were $486.3 million, with the metric (as a percentage of net sales) being 36.1%. BIG recorded an adjusted operating loss of $85 million in the reported quarter.

Other Financial Details

Big Lots ended the quarter with cash and cash equivalents of $49.1 million and long-term debt of $252.6 million. Total shareholders’ equity was $890.7 million. Inventories increased to $1,159 million from $943.8 million recorded in the prior-year quarter.

For 26 weeks ended Jul 30, 2022, BIG used net cash worth $135.4 million from operating activities.

Big Lots’ board announced a quarterly cash dividend of 30 cents a share, payable Sep 23, 2022, to its shareholders of record as of Sep 9. At the end of the reported quarter, BIG had $159 million remaining under its $250-million share buyback authorization.

On Jul 29, Big Lots entered into an engagement letter with PNC Capital Markets LLC and PNC Bank, National Association. PNC Capital Markets agreed to arrange a five-year syndicated asset-based revolving credit facility of up to $900 million and an additional uncommitted raise option of up to $300 million. Management anticipates entering the new credit facility during the fiscal third quarter. This will replace and refinance its present $600-million unsecured credit facility.

Big Lots concluded the quarter with 1,440 stores across 48 states.


Management expects the backdrop to remain tough. For the fiscal third quarter, management anticipates one-year comps to decline in the low double-digit range. Net new stores will contribute nearly about 140 bps of growth compared with the fiscal 2021 figure. Big Lots anticipates significant promotional activity in the third quarter, resulting in a gross margin rate in the mid-30s. SG&A dollars will increase in low single-digits from the last fiscal year’s level due to higher outbound transportation expenses and costs associated with two incremental forward distribution centers. This will induce an operating loss in the fiscal third quarter.

Management is steadily taking steps to control expenses. The $70-million of structural savings will be generated from store payroll, supplies and other goods. It estimates capEx to be nearly $160 million compared with $175 million projected previously.

As Big Lots will move into the fiscal fourth quarter, it anticipates cleaner inventory levels with sales momentum, and reduced freight and non-freight costs. Also, the gross margin will recover and remain flat with the last fiscal-year level.

3 Retail Stocks to Bet on

We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass (TGLS - Free Report) , Ulta Beauty (ULTA - Free Report) and CVS Health (CVS - Free Report) .

Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 28.2% and 47.7%, respectively, from the corresponding year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 24.4%, on average.

Ulta Beauty, a leading beauty retailer in the United States, currently has a Zacks Rank #2 (Buy). ULTA has a trailing four-quarter earnings surprise of 49.8%, on average.

The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 10.4% from the corresponding year-ago reported figure. ULTA has an expected EPS growth rate of 10.7% for three-five years.

CVS Health, a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care, currently has a Zacks Rank of 2. CVS has a trailing four-quarter earnings surprise of 6.7%, on average. Shares of CVS have risen 7% in the past three months.

The Zacks Consensus Estimate for CVS Health’s current financial-year sales and earnings per share suggests growth of 6.6% and 1.1%, respectively, from the corresponding year-ago reported numbers. CVS has an expected EPS growth rate of 7.7% for three-five years.

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