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Big Lots Beats, Ups Guidance - Analyst Blog

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Big Lots Inc. ( BIG ) recently posted better-than-expected third-quarter 2011 results. The quarterly earnings of 17 cents a share came ahead of the Zacks Consensus Estimate of 10 cents. However, the bottom-line results marked a decrease of 26.1% from the prior- year's earnings of 23 cents a share.

Including the Canadian operations, earnings came in at 6 cents a share.

Management now expects fiscal 2011 earnings between $2.85 and $2.92 per share compared with its earlier guidance range of $2.80 and $2.90. For the fourth-quarter of 2011, the company forecasts earnings in the range of $1.59 to $1.66 per share.

Big Lots operates as a broad line closeout retailer in the United States. The company offers food, health, beauty, plastic, paper, chemical, and pet products as well as home decorative products, besides other product lines.

The company's closeout format provides it an edge over traditional discount retailers as it offers merchandise assortments to customers at very low prices. Total revenue for the quarter increased 7.8% to $1,138.3 million, which also came ahead of the Zacks Consensus Revenue Estimate of $1,120 million. Moreover, comparable-store sales for the US stores inched up 1.7% compared with the prior-year quarter.

Management expects fourth-quarter 2011 comparable store sales to increase in the range of 1% to 2% for U.S.stores.

Big Lots, the operator of 1,445 stores, announced that operating profit for the quarter fell 41.3% to $15.8 million, whereas operating margin shriveled 110 basis points to 1.4% (excluding the Canadian operations). The reduction reflected gross margin shrinkage, partly offset by expense leverage.

In the prior quarter, Big Lots started its Canadian operations with 89 stores and 1000 committed associates, after the company completed the acquisition of Liquidation World Inc.

Big Lots has been exploring numerous options for more than two years for entering the Canadian turf. Besides, it expects the acquisition to be accretive to its top line in the coming years, while generating long-term growth prospects for the company.

During the quarter under review, Canadian operations net sales came in at $21.5 million. However, the segment reported an operating loss of $6.9 million.

Buybacks

Big Lots is returning much of its free cash to shareholders via share repurchases. After authorizing a share repurchase of $400 million in March 2010, Big Lots in May 2011 authorized an additional $400 million.

During the quarter under review, Big Lots spent $77 million to repurchase 2.5 million shares at an average price of $31.12 per share. Year-to-date, the company incurred $313 million to repurchase 9.7 million shares at an average price of $32.28 per share. The company currently has $145 million remaining under its $400 million share repurchase program announced in May 2011.

Other Financial Details

Based in Columbus, Ohio, Big Lots ended the quarter with cash and cash equivalents of $59.9 million and shareholders' equity of $750.2 million. The company, at the end of the quarter, had borrowings of $285 million under its credit facility.

During the reported quarter, the company opened 45 new stores.

Currently, we have a long-term 'Neutral' rating on the stock. Moreover, Big Lots, which competes with Target Corporation ( TGT ), holds a Zacks #2 Rank, which translates into a short-term 'Buy' rating.

BIG LOTS INC ( BIG ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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