We recently upgraded our recommendation on
Big Lots Inc.
) to Neutral following better-than-expected third-quarter 2012
bottom-line results and an upbeat outlook, with a price target of
$30.00. Earlier, we had an Underperform view on the stock.
The company posted third-quarter 2012 adjusted loss of 10
cents per share compared with adjusted earnings of 6 cents in the
comparable prior-year period. However, the reported loss per
share compared favorably with the Zacks Consensus Estimate of a
loss of 24 cents, and fared better than the company's projected
loss of 20 cents - 30 cents per share.
On a consolidated basis, the company now expects adjusted
earnings in the range of $2.86-$3.05 per share for fiscal 2012.
Earlier, the company had forecasted consolidated earnings between
$2.80 and $2.95 per share. For its U.S. operations, adjusted
earnings are forecasted to be in the range of $3.12 - $3.27 per
The Zacks Consensus Estimates have been portraying an uptrend
following a narrower-than-anticipated Q3 loss. The Zacks
Consensus Estimates for fiscal 2012 and 2013 increased 11 cents
and 5 cents to $2.91 and $3.13, respectively, in the last 30
On the valuation front, the stock looks attractive, signifying
adequate upside potential in the stock. Big Lots currently trades
at a forward P/E of 9.8x, reflecting a discount of 36% to the
peer group average of 15.4x. Again, its price-to-book ratio of
2.7 is at a substantial discount to the peer group average of
Big Lots' closeout format provides it an edge over traditional
discount retailers as it offers merchandise assortments to
customers at substantially lower prices. The company buys brand
merchandise at lower costs from vendors who have excess inventory
and resort to a fire sale of their goods, or have higher sales
returns or discontinued products.
However, the stock's top-line performance that missed Zacks'
expectation and the contraction in margin keeps us on the
Total revenue fell marginally by 0.4% to $1,134.2 million
during the quarter, and also missed the Zacks Consensus Estimate
of $1,139 million. Net sales for U.S. operations decreased 1.9%,
reflecting a 4.6% decline in comparable-store sales. U.S.
comparable-store sales are now expected to drop in the low-to-mid
single digit range during the fourth quarter and low single digit
range during fiscal 2012.
Gross profit for the third quarter decreased 2.6% year over
year to $432.6 million, whereas gross margin contracted 90 basis
points to 38.1%. The contraction in gross margin was due to
increased markdowns in discretionary categories and better
performance of lower margin carrying categories, such as
Electronics and Consumables, when compared with higher margin
The above analysis advocates our Neutral stance on the stock.
Big Lots, which competes with
), holds a Zacks #3 Rank that translates into a short-term "Hold"
BIG LOTS INC (BIG): Free Stock Analysis
TARGET CORP (TGT): Free Stock Analysis Report
To read this article on Zacks.com click here.