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Big Lots (BIG) Down 12.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Big Lots (BIG - Free Report) . Shares have lost about 12.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Big Lots due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Big Lots’ Q2 Loss Narrower than Expected, Revenues Fall Y/Y

Big Lots 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 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.

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.

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.

Outlook

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.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -91.44% due to these changes.

VGM Scores

At this time, Big Lots has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Big Lots has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Big Lots belongs to the Zacks Retail - Discount Stores industry. Another stock from the same industry, Dollar General (DG - Free Report) , has gained 1.5% over the past month. More than a month has passed since the company reported results for the quarter ended July 2022.

Dollar General reported revenues of $9.43 billion in the last reported quarter, representing a year-over-year change of +9%. EPS of $2.98 for the same period compares with $2.69 a year ago.

Dollar General is expected to post earnings of $2.54 per share for the current quarter, representing a year-over-year change of +22.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.3%.

Dollar General has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.


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