The largest broad-line closeout retailer Big Lots Inc.’s (BIG) latest release reminds us of the Dow theory, which says the market discounts everything. This stands perfectly true for the company as its shares plunged more than 14% after management lowered its first-quarter guidance on the key retail metric i.e., its comparable store sales.
Management now expects comparable store sales in the U.S. to be somewhat negative compared to its earlier guidance of an increase of 2% to 4%.
Big Lots experienced a sales decline in the month of April, with electronics sales bringing in the biggest disappointment. Management stated that the sales of furniture, hardlines and lawn and garden were quite good.
Big Lots also updated its guidance on the recently acquired Canadian operations. Management now expects retail sales to be marginally higher than its earlier projection of $25 to $30 million of sales for the first quarter.
The company has been exploring numerous options to enter the Canadian turf that ended with the acquisition of Liquidation World. Liquidation World operates approximately 89 stores and offers a broad assortment of closeout merchandise. Management believes the acquisition will be accretive to its top line in the coming years, and generate long-term growth prospects. The company also remains focused on enhancing its store operations capacity.
Big Lots implemented a new retail inventory system to value inventory based on the merchandise class level, instead of the merchandise department level. This would help in getting a much more clear view on the profitability of merchandising initiatives undertaken. The company also hinted of focusing on new warehouse management systems, HR systems and a real estate system in the next two years.
Currently, we have a long-term Neutral rating on the stock. Moreover, Big Lots faces stiff competition from Target Corporation (TGT) and has a Zacks #3 Rank, which translates into a short-term Hold rating.
To read this article on Zacks.com click here.
Zacks Investment Research
