We have downgraded our long-term recommendation on Columbus,
Big Lots Inc
) to Underperform from Neutral, based on the company's
lower-than-expected first quarter 2012 results and soft outlook for
Big Lots' first-quarter 2012 earnings of 68 cents per share
missed the Zacks Consensus Estimate by a penny and dropped 2.9%
from the year-ago quarter. Although total revenue increased 5.5% to
$1.29 billion, it fell short of the Zacks Consensus Estimate of
$1.31 billion. Margins also remained under pressure, with gross
margin shriveling 30 basis points; and operating margin contracting
130 basis points.
Based on the results, management now expects fiscal 2012
earnings to be in the range of $3.25 to $3.40 per share, down from
$3.40 to $3.50 forecasted earlier. Big Lots sees comparable store
sales for the year to remain flat or increase 1%, while total U.S.
sales are projected to rise by 5.5% to 6.5%. The company had
earlier forecasted comparable store sales to increase in the range
of 2% to 3%, and total U.S. sales to rise by 8% to 9%.
Big Lots, which operates in a highly competitive discount retail
business, faces stiff competition from other general merchandise,
discount, food, arts and crafts, and dollar store retailers such as
Wal-Mart Stores Inc.
). This may result in a loss of market share, deterioration in
sales and operating margins. The competitors having larger number
of stores, greater market presence, and financial resources will
continue to weigh on the company's results.
Amid a sluggish economic recovery, Big Lots' 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 disposable income, and in turn the
company's growth and profitability.
Given these concerns, we expect Big Lots to perform below its
peers and industry levels in the coming months. As such, we see
little reason for investors to own the stock.
BIG LOTS INC (BIG): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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