Big Lots' (BIG) Positive Earnings Streak Lifts The Stock

Shares of Big Lots Inc. (NYSE:BIG) gained nearly 3% on May 29, after the company delivered sixth consecutive quarter of earnings beat when it reported first-quarter results and provided a robust fiscal 2017 guidance.

The company delivered adjusted earnings of $1.15 per share beating the Zacks Consensus Estimate of $1.00 and also increased 40.2% year over year. Further, earnings surpassed the company’s guided range of 95 cents–$1.05 per share. The company’s earnings were driven by robust performance of ownable and winnable merchandise strategy in the month of March and April following a slow start in February.

While revenues of $1,296.8 million missed the Zacks Consensus Estimate of $1,311 million and also declined 1.2% from the year-ago figure, primarily due to lower store open comparison with the prior-year quarter and dismal comparable sales. Notably, the company’s revenues missed the Zacks Consensus Estimate for the fourth straight quarter. This can be cited as one of the reasons for the stock’s dismal performance in the past one year. The company’s shares have declined 2.2% in the said period compared with the Zacks categorized Retail-Discount & Variety industry’s gain of 1.2%.

Big Lots reported comparable sales decline of 0.9% lower than its guided range of flat to up 2%. Comps witnessed a fall for the first time in the past thirteen quarters.

The company’s gross profit grew 1.3% year over year to $524.3 million, while gross margin expanded 100 basis points to 40.4%. Operating profits totaled $79.7 million, up 27.4% from the prior-year quarter.

Other Financial Details

Big Lots ended the quarter with cash and cash equivalents of $65.7 million, up 2.1% year over year. Inventories were up 3.6% to $836.1 million. Total shareholder equity at the end of the quarter was $653.9 million.

Long-term obligations under the bank credit facility totaled $115.7 million at the end of the quarter under review.

In the quarter under review, the company did not shut down any stores but opened two new stores. As of Apr 29, 2017, Big Lots operated 1,434 stores. During the quarter, the company bought back 0.7 million of shares for $34 million. Currently, the company has nearly $116 million of share repurchase left under current authorization.

Guidance

The company provided guidance for the second quarter as well as updated fiscal 2017. For fiscal 2017, adjusted earnings per share are projected in the band of $4.05–$4.20, up from the earlier guidance of $3.95–$4.10. This represents growth of 11–15% over $3.64 per share recorded in fiscal 2016. The Zacks Consensus Estimate for earnings for fiscal 2017 is pegged at $4.09 per share.

However, the company reiterated comps and cash flow guidance. Comps are anticipated to increase in the range of 1–2%. Moreover, the company expects cash flow generation of nearly $180–$190 million. Sale for the full year are predicted to be in the range of 2–3%, compared with earlier guided range of flat to up slightly.

For the second quarter, earnings per share are forecasted in the range of 58–63 cents compared with 52 cents earned in the prior-year quarter. Comps are expected to be up in the low-single digit. The Zacks Consensus Estimate for second-quarter earnings is pegged at 59 cents per share.

Stocks to Consider

Big Lots currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Gildan Activewear Inc. (TO:GIL) , Burlington Stores, Inc. (NYSE:BURL) and Guess', Inc. (NYSE:GES) . All three of them carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gildan Activewear, with long-term earnings per share growth rate of 12.3%, has delivered positive earnings surprise in the last two quarters.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Guess' delivered an average positive earnings surprise of 33.3% in the preceding four quarters and has a long-term earnings growth rate of 17.5%.

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