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Why Is Big Lots (BIG) Up 42.5% 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 42.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Big Lots Posts Narrower-than-Expected Q3 Loss

 Big Lots posted adjusted net loss of 18 cents a share in third-quarter fiscal 2019, which was narrower the Zacks Consensus Estimate of 21 cents. The bottom line came within management’s guidance range of a loss of 15-25 cents. However, the quarterly loss was wider than a loss of 16 cents reported in the prior-year quarter.

Net sales grew 1.6% to $1,168 million and came marginally ahead of the Zacks Consensus Estimate of $1,161 million. The top line increased on account of sales growth in high volume new stores coupled with higher store count. Notably, furniture was the top performing category registering a mid-single digit comps growth in the quarter.


Comps decreased slightly by 0.1% against the company’s expectations of flat comps for the third-quarter. Although sales were sluggish in August, the company saw some sequential improvement in sales trends during September and October.

Gross profit increased 0.9% year over year to $463.4 million, while gross margin contracted 20 basis points (bps) to 39.7%. The downside was caused by higher markdown rate and promotional expenses which was partially offset by favorable merchandise mix. The company forecasts gross margin for the fourth-quarter to remain under pressure due to higher promotion expenses and adverse impact of tariffs.
 
In the reported quarter, adjusted S&A expenses came in at $433.2 million, up 5.3% year over year. However, the metric (as a percentage of net sales) remained unchanged in the same period last year.

Adjusted operating loss came in at $4.5 million, compared with the prior-year quarter’s operating income of $2.8 million.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $62 million. Inventories increased 4% to $1,117 million. Long-term debt totaled $501 million, up from $488 million in the prior-year period. Total shareholders’ equity was $762.3 million.

Management stated that increases in inventory were due to planned year-over-year sales increases and inventory builds in certain merchandise categories, including Furniture and Soft Home. However, the company forecasts inventory at the end of fourth-quarter to be to be down slightly year-over-year.

Year to date, the company has returned about $87 million to its shareholders in the form of share repurchases and dividend.

Guidance

Big Lots’ anticipates comps to be positive in the fourth quarter. Also, management expects sales growth similar to what was witnessed in the third quarter. Based on these expectations, Big Lots envisions fourth-quarter earnings per share between $2.40 and$2.55 compared with an earnings of $2.68 delivered in the year ago period.

For fiscal 2019, the company 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.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Big Lots has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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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