Big Lots is an Investor Favorite Amid Coronavirus: Here's Why
Big Lots, Inc. BIG is a top-notch performer amid the COVID-19 jitters, thanks to its robust business strategies that are helping it sail through these trying times. This Zacks Rank #2 (Buy) stock remains an investor favourite, buoyed by immense strength in the company’s transformational efforts and omni-channel initiatives. These endeavors are aiding the company to put up stellar quarterly performances apart from undertaking shareholder friendly moves. This Columbus, OH-based company’s shares have appreciated 54.7% year to date, crushing its industry’s growth of 6.7%. The stock has also outpaced the Retail-Wholesale sector and the broader S&P 500 market’s rally of 32.8% and 6.5%, respectively. A VGM Score of A further speaks of its inherent potentials.
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Big Lots’ transformation initiative, referred to as Operation North Star, focuses on driving top-line growth, cost containment, and enhancement in systems and infrastructure. Notably, it expects to significantly surpass its initial cost-reduction target of $100 million. Although management anticipates continued pandemic-related incremental expenses in the second half of fiscal 2020, it remains keen on streamlining the cost structure.
Meanwhile, the Broyhill brand is performing outstandingly and is projected to contribute more than $250 million in sales in its first year, with potential to become a $1 billion brand. Additionally, Big Lots is on track with its pantry-optimization initiative, which involves repositioning the assortment by shifting square footage from food staples to food, entertainment and consumables. Its everyday essentials’ assortment and stay-at-home products position the company well going ahead.
Now shedding light upon Big Lots’ omni-channel endeavors, its e-commerce initiatives, Rewards program and store expansion are worth mentioning. The company is focused on enhancing the omni experience by aiming at higher capabilities, removing friction and increasing customer base. Moreover, it has been expanding the payment options online with the addition of lease-online, pick-up-in-store, the online version of the Easy Leasing program by Progressive and the Big Lots credit card. Its Rewards program is also exhibiting strength, with enrollment increasing 60% year over year during second-quarter fiscal 2020. The net promoter scores, active membership and new-customer acquisition have also been robust.
Speaking of store-related endeavors, management has been progressing well with the rolling out of The Lot and queue lines to existing Store of the Future locations. On its last earnings call, management informed that Big Lots had about 694 stores with the queue and 630 with The Lot. The Lot gives an opportunity of testing new merchandise categories or assortments on being part of the themed presentations. Such well-chalked omni-channel initiatives are likely to keep on adding higher sales and drive overall performance.
To add more shine, the company looks well placed on the dividend-payout front. We note that Big Lots has a current annualized dividend rate of $1.20 a share, flat with the year-ago period. Notably, it has a dividend payout of 19.3%, dividend yield of 2.5% and free cash flow yield of 22.9%. With an annual free-cash-flow return on investment of 9.4%, the dividend payment is likely to be sustainable. The company's board has also authorized repurchasing of nearly $500 million outstanding shares.
Given the aforementioned factors, Big Lots appears to be a prudent investment opportunity now.
A Few More Key Picks in Retail
Target TGT has a long-term earnings growth rate of 7.2% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Tapestry TPR has a long-term earnings growth rate of 10% and a Zacks Rank #2 (Buy).
Sprouts Farmers Market SFM, also a Zacks Rank #2 stock, has a long-term earnings growth rate of 9.2%.
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