Big Lots (BIG) Q4 Earnings Beat Estimates, Comps Rise 7.9%

Big Lots, Inc. BIG posted fourth-quarter fiscal 2020 results with the top and bottom line increasing year over year and surpassing the Zacks Consensus Estimate. Performance gained from solid comparable sales (comps) growth, in most categories.

Additionally, the company gained from sturdy e-commerce and omni-channel sales. However, soft store traffic, especially in December, stemming from stay-at-home norms was a headwind. Also this Zacks Rank #4 (Sell) company witnessed supply chain and inventory-related challenges during the quarter.

Going ahead, management expects to navigate through the challenges in the business environment on the back of strategies undertaken as part of the Operation North Star as well as its focus on boosting assortments and customer services. In fiscal 2021, management expects to continue rolling out its Lot and Queue Line programs across stores, expand e-commerce capabilities, accelerate new store openings as well as boost offerings under the Broyhill brand.

Shares of Big Lots gained 2.2% during the trading session on Mar 5. Shares of the company have increased 33.2% in the past three months against the industry’s decline of 7.7%.

Q4 in Detail

This Columbus, OH-based company reported adjusted earnings of $2.59 cents per share, surpassing the Zacks Consensus Estimate of $2.50 cents. Moreover, the bottom line increased 8.4% from $2.39 reported in the prior-year quarter.

Net sales increased 8.1% to $1,738 million and beat the Zacks Consensus Estimate of $1,736 million on robust comps as well as higher sales from new and relocated non-comp stores. This was offset by a slight drop in store count year over year.

Impressively, comps increased 7.9% in the reported quarter on strong growth in basket across both channels. We note that the company witnessed double-digit comps growth across all categories, other than food and seasonal. Moreover, sales in the company’s e-commerce and omni-channel platforms increased more than 130% year on year and contributed 300 basis points (bps) toward overall comps. In stores, transactions were down slightly due to weak traffic trends stemming from stay-at-home practices.

Gross profit jumped 8.1% year over year to $685.1 million. However, gross margin contracted 10 bps to 39.4%, as freight related headwinds offset gains from reductions in markdowns.

In the reported quarter, selling and administrative expenses came in at $520.6 million, up 10.5% year over year. The metric (as a percentage of net sales) increased 70 bps to 30% year over year.

Furthermore, operating profit came in at nearly $131 million, up from $125.5 million recorded in the prior-year quarter. However, operating margin came in at 7.5%, down 30 bps from the year-ago quarter’s levels.

Big Lots, Inc. Price, Consensus and EPS Surprise

Big Lots, Inc. price-consensus-eps-surprise-chart | Big Lots, Inc. Quote

Other Financial Details

Big Lots ended the quarter with cash and cash equivalents of nearly $560 million, compared to $53 million in the prior-year quarter. Inventories increased nearly 2% to $940 million. Long-term debt totaled $36 million compared with $279 million in the prior-year quarter. Total shareholders’ equity was $1,277.7 million.

During fiscal 2020, net cash provided by operating activities amounted to $399.3 million. During the fourth-quarter, net cash provided by operating activities were nearly $132 million. Capital expenditures totaled $32 million in the reported quarter and $135 million for fiscal 2020. For fiscal 2021, capital expenditures are anticipated between $180 million and $190 million.

Furthermore, management bought back 1.6 million shares in the quarter worth $73 million under its earlier-announced $500 million worth of share repurchase program. So far the company has utilized $173 million under its authorization for repurchasing 3.8 million shares.

Additionally, the company's board announced a cash dividend of 30 cents a share. This dividend is payable on Apr 2, 2021, to shareholders of record as on Mar 19.

In the reported quarter, Big Lots shuttered three stores, while opening none, bringing the total store count to 1,408. For fiscal 2021, management projects to open 50-60 stores, of which nearly 20 are likely to be relocations.

Outlook

The company expects the negative impacts of COVID-19 to persist throughout fiscal 2021. Owing to lack of visibility, management refrained from providing any guidance for the fiscal. Nevertheless, based on current information, for first-quarter fiscal 2021, the company expects earnings in the range of $1.30-$1.45, which suggests an increase from $1.26 reported in the prior-year quarter. Bottom-line view is based on low-single digit rise in comparable sales. The Zacks Consensus Estimate for earnings in the first quarter is currently pegged at $1.35.

Solid Picks in Retail

L Brands, Inc. LB, flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 13%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tapestry, Inc. TPR, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 10%.

Sprouts Farmers Market, Inc. SFM, with a Zacks Rank #2, has a long-term earnings growth rate of 9.2%.

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