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Big Lots (BIG) Up 2.1% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Big Lots, Inc. (BIG - Free Report) . Shares have added about 2.1% in that time frame.

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

Big Lots Misses on Q1 Earnings & Sales, Updates View

Big Lots saw a weak start to the fiscal. After nine straight quarters of earnings beat, the company missed the Zacks Consensus Estimate in first-quarter fiscal 2018. Further, it has lagged sales estimates for the third straight quarter. Apart from these, the decline in comps and margin contraction also hurt investors’ sentiments. On top of it, the updated guidance for fiscal 2018 is also discouraging.

Let’s Delve Deeper

The company posted adjusted earnings of 95 cents a share, lagging the Zacks Consensus Estimate of $1.19. Further, the figure has also declined 7.4% from the year-ago quarter. It missed the company’s earlier guidance of $1.15-$1.22 for first-quarter fiscal 2018.

The company’s top line also witnessed the same fate. Net sales of $1,268 million fell short of the Zacks Consensus Estimate of $1,280 million. We note that the company missed sales estimates in six of the seven trailing quarters. The figure was also down 2.1% from the year-ago period, on the back of lower comparable sales (comps) and lesser store openings year-over-year.

Comps were down 3% compared with the company’s guided range of flat to down marginally. Notably, comps declined in only four out of the trailing 17 quarters.

While the company’s gross profit decreased 2.3% year over year to $512 million, on the back of lower revenues, gross margin contracted 10 basis points to 40.5%. Adjusted operating profit totaled $55.9 million compared with $79.7 million in the prior-year quarter. Adjusted operating margin contracted 180 basis points to 4.4%.

Other Financial Details

The company ended the reported quarter with cash and cash equivalents of $64.8 million. Inventories were up 1.6% to $849.6 million. Total shareholder equity at the end of the reported quarter was $689.1 million. Long-term obligations under the bank credit facility totaled $174 million.

In the reported quarter, the company returned $14 million in the form of dividends in April. Earlier, the company announced $100 million share buyback program.

In the quarter under review, Big Lots opened one outlet and shut two. It ended the fiscal first quarter with total 1,415 stores.

Guidance

Big Lots issued guidance for the fiscal second quarter and updated fiscal 2018 guidance.

For the fiscal, adjusted earnings per share are projected to be $4.50-$4.70 compared with the earlier guidance of $4.75-$4.95 and $4.45 per share recorded in the year-ago quarter.

Comps are expected to increase by 1% from the earlier projection of a low-single digit. Moreover, the company expects cash flow generation of nearly $110-$120 million from $120-$130 million expected earlier.

For the fiscal second quarter, earnings per share are forecasted to be 60-70 cents compared with 67 cents in the prior-year quarter. Comps are expected to be flat to up 2%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.

Big Lots, Inc. Price and Consensus

 

Big Lots, Inc. Price and Consensus | Big Lots, Inc. Quote

VGM Scores

At this time, BIG has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise BIG has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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