Big Lots: Earnings Scorecard – Analyst Blog

Big Lots Inc. (BIG), which operates as a broad line closeout retailer in the United States, posted better-than-expected first-quarter 2010 results on May 27, 2010, buoyed by strong sales and effective inventory management, prompting management to raise the outlook.

 

Street analysts had nearly a week to digest the news. Below, we cover the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for both the short-term and the long-term outlook for the stock.

 

 

Big Lots’ first-quarter 2010 quarterly earnings of 68 cents a share topped the Zacks Consensus Estimate by a penny. Results soared 54.5% from 44 cents delivered in the prior-year quarter.

 

The company said that total revenue rose 8.2% to $1,235.2 million from the prior-year quarter. Big Lots indicated that the comparable-store sales sustained its growth momentum in fiscal 2010. After increasing 5.1% in fourth-quarter 2009, comps grew 6% in the quarter under review.

 

(Read our full coverage on this earnings report: Big Lots Outperforms, Ups Outlook)

 

Clearly, a positive sentiment is palpable among analysts about Big Lots’ performance. Following the earnings release, the Zacks Consensus Estimate for the company has been on the rise, with analysts remaining bullish on the stock. The strong earnings and sales outlook bolstered analysts’ confidence.

 

Big Lots now expects fiscal 2010 earnings in the range of $2.75 to $2.85 per share, up from its previous guidance range of $2.65 to $2.75. The retailer now expects second-quarter 2010 earnings between 44 cents and 49 cents.

 

Management also hinted that comps are expected to rise between 4% and 5% in the second quarter, and between 3.5% and 4.5% in fiscal year 2010. Previously, management predicted fiscal 2010 comps in the range of 3% to 4%.

 

Big Lots remains a favorable stock pick due to the current business momentum, which remains favorable with the rise in sales of discretionary items, comps growth, unit acceleration due to a softer real estate market, broad vendors’ base, new loyalty program as well as enhancement of shareholders’ return.

 

 

From the table below, a positive inclination can be witnessed among the analysts, who remain bullish on Big Lots’ optimistic outlook. In the last 7 days, 9 out of 12 analysts covering the stock lifted their earnings estimates for second-quarter 2010, whereas 8 analysts raised their estimates for fiscal 2010. We believe that the favorable balance sheet, improved store base and cash flow generation will provide the company a platform to deliver steady revenue growth as the economy revives.

 

 

 

 

The magnitude of estimate revisions indicates that the analysts were buoyed by Big Lots’ healthy first-quarter 2010 performance and optimistic outlook. Consequently, the Zacks Consensus Estimate has been on the rise since the earnings release. In the last 7 days, the Zacks Consensus Estimate for second quarter climbed 4 cents and for fiscal 2010, it increased 5 cents.

 

 

 

The current Zacks Consensus Estimate for second quarter 2010 ranges from 46 cents to 49 cents. For fiscal 2010, the estimates range from $2.80 to $2.91.

 

Big Lots’ shares maintain a Zacks Rank #3, which translates into a short-term ‘Hold’ recommendation. Our long-term recommendation for the stock remains ‘Neutral’.

 

Big Lots’ closeout format provides it an edge over traditional discount retailers as it offers merchandise assortments to customers at very low prices. We think the company’s focus on closing underperforming stores, reducing operating expenses, and improving merchandise content are steps in the right direction.

 

Further, the improved store productivity and the softening of the real estate market have prompted management to increase store openings. Big Lots now plans to open 80 new stores in fiscal year 2010. With a stronger business model, Big Lots now expects to generate a cash flow of approximately $220 million in fiscal 2010, up from the previous guidance of $200 million.

 

However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability. Nearly, 70% of merchandise assortment is discretionary in nature.