Shares of Big Lots Inc. (BIG - Free Report) jumped 13.6% on Mar 8, after it reported fourth-quarter fiscal 2018 earnings wherein earnings exceeded the Zacks Consensus Estimate and grew year over year. Following a flattish start in November, sales accelerated in December and January that contributed to the quarterly results.
Results also gained from robust holiday season sales on the back of solid performance in merchandise categories. Additionally, the company’s store remodeling efforts in sync with its store of the future initiative along with increased focus on Rewards loyalty program bodes well.
We note that this Zacks Rank #3 (Hold) stock has gained 21.3% in the past three months underperforming the industry’s growth of 6.7%.
Let’s Delve Deeper
This Columbus, OH-based company posted adjusted earnings of $2.68 a share compared with earnings of $2.57 in the prior-year quarter. Further, the figure surpassed the Zacks Consensus Estimate of $2.30. The bottom line clearly came above the company’s earlier guidance for earnings of $2.20-$2.40.
Net sales decreased 2.6% to $1,598.6 million, missing the Zacks Consensus Estimate of $1,601 million. Top-line decline was mainly due to reduced store count year over year that offset comparable store sales growth. Comps improved 3.1% driven by high-single digit growth in soft home and furniture categories. The figure has surpassed with the company’s prior guidance of flat to 2% increase. This marked the third consecutive quarter of positive comps.
The company’s gross profit decreased 3.3% year over year to $659.3 million, while gross margin contracted 40 basis points to 41.2%. This was due to high seasonal markdown rate and elevated costs owing to higher tariff. In the reported quarter, SG&A expenses came in at $476.9 million, down 1.6% year over year.
Operating income came in at $148.4 million compared with operating income of $167.8 million in the prior-year quarter. Meanwhile, operating margin contracted 90 bps to 9.3% in the quarter.
Other Financial Details
The company ended the fiscal third quarter with cash and cash equivalents of $46 million. Inventories were up 11.1% to $969.6 million. Total shareholders’ equity was $693 million. Long-term obligations under the bank credit facility totaled $374.1 million. Big Lots’ capital expenditures for the fiscal 2018 were $232 million compared with $143 million in the prior-year period. Moving ahead, the company expects capital expenditures to be nearly $260-$270 million for fiscal 2019.
In fiscal 2018, the company has returned about $151 million to shareholders with $51 million in the way of dividends and $100 million in the form of share repurchases. Big Lots has announced a cash dividend of 30 cents per share on Mar 8, payable on Apr 5, 2019.
In the fiscal fourth quarter, Big Lots opened 12 outlets and shut 26 while it opened 32 stores and closed 47 in fiscal 2018. The company ended the quarter with a total number of 1,401 stores with 115 stores remodeled as part of its Store of the Future initiative. This remodeling effort is likely to be accretive to sales specially in Furniture, Seasonal and Soft Home categories. Going ahead, it intends to open 50 new or relocated stores and shut down 45 stores in fiscal 2019.
Big Lots, Inc. Price, Consensus and EPS Surprise
Big Lots earnings guidance for the first quarter of fiscal 2019, which is not so encouraging. Management expects adjusted earnings to be 65-75 cents in the fiscal first quarter as compared with 95 cents reported in the year ago period. The estimated figure also came below the Zacks Consensus Estimate of 88 cents. This might hurt investor’s sentiment.
For fiscal 2019, adjusted earnings per share are projected to be $3.55-$3.75, below the prior year period’s reported figure of $4.04. We note that the Zacks Consensus Estimate for the fiscal is pegged at $3.63, which is below the midpoint-$3.65 of the guidance. Further, the company anticipates gross profit to rise in the low to mid-single digits on the back of sales growth.
Big Lots expects comps and sales to witness low- single digit growth in fiscal 2019. Moreover, the company expects cash flow generation of nearly $95-$105 million. Also, it anticipates to return roughly $100 million to shareholders in the form of dividends and share repurchases.
Moreover, management revealed its plans to launch a three-year cost reduction program of $100 million wherein it expects to realize $40 million in fiscal 2019 along with $30 million each in fiscal 2020 and 2021 respectively.
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