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Big Lots (BIG) Up 17.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Big Lots (BIG - Free Report) . Shares have added about 17.3% 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 Beats Earnings & Sales Estimates in Q1

Big Lots reported impressive first-quarter fiscal 2020 results. Both the top and the bottom line outpaced the Zacks Consensus Estimate and grew year over year. With this, the company’s earnings and revenues reverted to a positive surprise trend after lagging the consensus estimate in the previous quarter.

In addition, the company saw a solid start to the fiscal second quarter. Management further believes to efficiently navigate through the coronavirus chaos. The company is confident about its Operation North Star strategies.

Q1 in Detail

This Columbus, OH-based company reported adjusted earnings of $1.26 a share, surpassing the Zacks Consensus Estimate of 41 cents. Moreover, the bottom line improved nearly 37% year over year. Higher sales coupled with lower SG&A expense fueled the bottom line.

Net sales edged up 11.1% to $1,439.1 million and outshined the Zacks Consensus Estimate of $1,332 million on higher comparable sales (comps) and sales growth from new and relocated non-comp stores. During March, sales grew low double-digits as consumers stocked up on essentials. Impressively, comps increased 10.3% in the reported quarter.

Gross profit increased about 10% year over year to $570.8 million, while gross margin contracted 80 basis points (bps) to 39.7%. The drop in gross margin can be attributed to higher shrink expenses and a shift in product mix toward lower-margin categories of food and consumables.

In the reported quarter, S&A expenses came in at $458.6 million, down 0.4% year over year. Moreover, the metric (as a percentage of net sales) declined 360 bps from the prior-year quarter to 31.9%.

Furthermore, operating profit came in at $74.4 million, up from adjusted operating profit of $54.3 million in the prior-year quarter. Moreover, operating margin came in at 5.2%, up 100 bps from the year-ago quarter’s adjusted tally.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $311.9 million. Inventories declined 13% to $806.6 million due to robust sales for most merchandise categories. Long-term debt totaled $436.7 million, down 7.2% from $470.4 million in the prior-year quarter. Total shareholders’ equity was $883.9 million.

During the reported quarter, the company provided net cash of $146.1 million from operating activities. Further, management drew additional amounts from its revolving credit facility to deal with the coronavirus crisis.

During the fiscal first quarter, the company bought back roughly 244,000 shares for $50 million before the suspension of the share repurchase program. It had $348 million remaining on its share repurchase program. Concurrently, management announced a quarterly cash dividend of 30 cents per share, payable on Jun 26, 2020, to shareholders of record as on Jun 12.

Guidance

Big Lots has been seeing strong comps since the start of the second quarter on continued business acceleration since mid-April. However, it expects comp trends to moderate during the rest of the quarter, thanks to other retailers’ reopening, planned cancellation of the Friends and Family event, inventory restraints across some categories and abatement of stimulus-driven demand.

Further, management envisions earnings per share in the band of 65-80 cents, assuming flat comps growth with the first quarter. This view incorporates expected pre-tax costs with respect to COVID-19 of roughly $18 million and unfavorable pre-tax impact from the anticipated closing of the sale and leaseback transaction of nearly $7 million. However, the outlook excludes the anticipated gain on sale from the transaction.

For fiscal 2020, management estimates capital expenditures of $130-$140 million, reflecting a decrease from $160-$270 million expected earlier.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 174.89% due to these changes.

VGM Scores

Currently, Big Lots has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Big Lots has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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