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Why Is Big Lots (BIG) Up 8.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Big Lots (BIG - Free Report) . Shares have added about 8.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Big Lots due for a pullback? 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 Earnings & Revenue Beat

Big Lots’ second-quarter fiscal 2019 marked the third straight quarter of positive earnings surprise. The bottom line also surpassed the management’s guided range, courtesy of better expense management. On the top-line front, it outpaced the Zacks Consensus Estimate for the second straight quarter.

Let’s Delve Deeper

The company posted adjusted earnings of 53 cents a share, which surpassed the Zacks Consensus Estimate of 40 cents. The bottom line also surpassed its earlier guidance of 35-45 cents. However, the metric was below 59 cents reported in the prior-year quarter.

Net sales grew 2.5% to $1,252.4 million and marginally outpaced of the Zacks Consensus Estimate of $1,251 million. The top line increased on solid comparable store sales and sales growth in high-volume new stores, partly offset by reduced store count year over year.

Comparable store sales improved 1.2% and were in line with the company’s prior guidance of a low-single-digit increase. This marked the fifth successive quarter of comparable store sales growth.

Gross profit grew 1.4% year over year to $498.2 million while gross margin contracted 40 basis points to 39.8%. In the reported quarter, adjusted SG&A expenses were $455 million, up 6.7% year over year, while the same (as a percentage of net sales) rose 140 basis points to 36.3%.

Adjusted operating income was $32.6 million, down 63.8% from the prior-year quarter. Meanwhile, operating margin contracted 100 basis points to 2.6% in the quarter under review.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $53.7 million. Inventories grew 2.3% to $874.1 million. Total shareholders’ equity was $644.5 million.

Management stated that increases in inventory were due to “moving forward inventory commitments to support earlier resets of new assortments in the key categories of Furniture and Soft Home, and the slower than anticipated sell through of seasonally sensitive product in Q2 largely due to weather. This growth was partially offset by a lower store count year-over-year.”

Long-term obligations under the bank credit facility totaled $467.8 million, up from $324.7 million in the prior-year period.

Year to date, the company has returned about $75 million to its shareholders in forms of share repurchases and dividend. Management anticipates cash flow of approximately $75 million for fiscal 2019, up from $65 million mentioned earlier.

Guidance

Big Lots now expects third-quarter adjusted loss to be 15-25 cents a share compared with a loss of 16 cents incurred in the year-ago period. The company anticipates comparable store sales of nearly flat.

For fiscal 2019, management continues to expect adjusted earnings of $3.70-$3.85 per share. However, the guided range is still below the prior year’s reported figure of $4.04. The company projects comparable store sales for fiscal 2019 to be flat to slightly positive.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 37.63% due to these changes.

VGM Scores

At this time, Big Lots has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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