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Big Lots (BIG) Down 12.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Big Lots (BIG - Free Report) . Shares have lost about 12.7% 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 the most recent earnings report in order to get a better handle on the important drivers.

Big Lots Lags Q2 Earnings & Sales Estimates, Updates View

Big Lots posted disappointing second-quarter fiscal 2018 results. Further, earnings and sales lagged estimates for the second and fourth straight quarter, respectively. On top of it, the updated guidance for fiscal 2018 is discouraging.

Let’s Delve Deeper

This Columbus, OH-based company posted adjusted earnings of 59 cents a share, lagging the Zacks Consensus Estimate of 67 cents. Further, the figure also declined 12% from the year-ago quarter. It fell short of the company’s earlier guidance of 60-70 cents for the quarter under review.

The company’s top line also witnessed the same fate. Net sales of $1,222.2 million fell short of the Zacks Consensus Estimate of $1,233 million. We note that the company missed sales estimates in six of the seven trailing quarters. However, the figure was slightly up 0.2% from the year-ago period, on the back of positive comparable sales (comps) that partially offset lesser store openings year over year. Comps were up 1.6% compared with the company’s guided range of flat to up 2% marginally.

While the company’s gross profit decreased 0.2% year over year to $491.4 million, gross margin contracted 20 basis points to 40.2%. This was due to high seasonal markdown rate, partially offset by favorable merchandise mix and reduced shrink costs. In the reported quarter, SG&A expenses came in at $426.6 million, up 2.8% year over year.

Operating profit totaled $34.3 million compared with $48 million in the prior-year quarter. Operating margin contracted 110 basis points to 2.8%.

Other Financial Details

The company ended the reported quarter with cash and cash equivalents of $58 million. Inventories were up 5.4% to $854 million. Total shareholders’ equity at the end of the reported quarter was $605.7 million. Long-term obligations under the bank credit facility totaled $324.7 million. The company’s capital expenditures for the quarter were $58 million compared with $31.1 million last year.

In the reported quarter, the company returned $12 million in the form of dividends in September. The company bought back 2.4 million shares worth $100 million.

In the quarter under review, Big Lots opened four outlets and shut five. It ended the quarter with a total number of 1,415 stores.

Guidance

For the fiscal 2018, adjusted earnings per share are projected to be $4.40-$4.55 compared with the earlier guidance of $4.50-$4.70 and $4.45 per share recorded in the year-ago quarter. the Zacks Consensus Estimate is pegged at $4.55, which is in sync with the company’s high-end of the projection, and might witness a downward revision. However, we still believe that the guidance does not raise enthusiasm.

The company continues to expect comps to increase 1% in 2018. Moreover, the company expects cash flow generation of nearly $100-$110 million compared with $110-$120 million expected earlier.

Big Lots issued third and fourth quarter guidance. For the fiscal third quarter, management expects bottom line to be in the range of a loss of 6 cents to earnings of 4 cents compared with 6 cents reported in the prior-year quarter. Comps are expected to be up 2-4% in the next quarter. The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at 1 cent per share. Gross margin for the quarter is expected to remain flat or decline slightly from the prior-year quarter.  

Additionally, the company anticipates comps to rise low-single digit in the fourth quarter. For the fourth quarter, earnings are forecasted to be in the range of $2.90-$3.00 per share, up from $2.57 cents reported in the prior-year quarter.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -112.5% due to these changes.

VGM Scores

At this time, Big Lots has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Big Lots has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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