On Sep 9, we upgraded our recommendation on
Big Lots, Inc.
), the broad-line closeout retailer in the United States, to
Neutral from Underperform, following better-than-expected
second-quarter fiscal 2013 bottom-line results. The company
currently carries a Zacks Rank #3 (Hold).
Why the Upgrade?
Big Lots reported second-quarter consolidated adjusted
earnings of 31 cents a share that comfortably surpassed the Zacks
Consensus Estimate of 25 cents and came above management's
earlier guidance of 17 cents to 27 cents.
We believe Big Lots' closeout format provides it an edge over
traditional discount retailers as it offers merchandise
assortments to customers at very 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 year-over-year decline of 13.9% in the quarterly
earnings paints a dull picture despite stronger-than-anticipated
results. Moreover, net sales portrayed an unimpressive growth of
0.6% and fell short of the Zacks Consensus Estimate.
Consequently, for the second time management took a
conservative stance and lowered the sales and earnings
On a consolidated basis, Big Lots expects adjusted earnings in
the range of $2.80 to $3.05 per share for fiscal 2013, down from
its earlier guidance of $2.87 to $3.12 per share. Net sales are
expected to remain flat or increase by 1%. Previously, the
company forecasted net sales to increase in the range of 1% to
The key concerns for the company remain waning domestic
comparable-store sales, sluggish sales of discretionary items in
a low income consumer environment, and soft sales of the higher
margin seasonal products.
However, we believe that the company could witness improving
trends in the second half of fiscal 2013, given the initiatives
undertaken by management such as store remodels, changes to its
loyalty reward program, bringing in coolers and freezers to
expand merchandises of food-related items and target food stamp
recipients, "Edit to Amplify" merchandising strategy and
furniture financing program. Moreover, Canadian operations could
prove a catalyst in driving future results.
Thus, the pros and cons exhibited in the stock fairly support
our unbiased view on the stock.
Other Stocks to Consider
Until any further upward revision in the Zacks Rank of Big
Lots, the other stocks worth considering in the retail
Citi Trends, Inc.
Fortune Brands Home & Security, Inc.
Lumber Liquidators Holdings, Inc.
), all sporting a Zacks Rank #1 (Strong Buy).
BIG LOTS INC (BIG): Free Stock Analysis
CITI TRENDS INC (CTRN): Free Stock Analysis
FORTUNE BRD H&S (FBHS): Free Stock Analysis
LUMBER LIQUIDAT (LL): Free Stock Analysis
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