Big Lots Strong on Transformation Efforts, Up 41% in 3 Months

Big Lots, Inc. BIG remains in investors’ good books amid coronavirus-induce stress, thanks to strength in its transformational efforts. The company is banking upon this initiative, which is referred to as Operation North Star, while also focusing on driving top-line growth, cost containment, and enhancement in systems and infrastructure. Solid strategic endeavors have aided it to recently deliver an upbeat earnings view for third-quarter fiscal 2020. This has been further adding strength to the Zacks Rank #2 (Buy) stock’s performance.

Impressively, shares of the Columbus, OH-based company have surged 41.4% in the past three months and outperformed the industry’s 16.1% rally. A VGM Score of A further demonstrates the stock’s solid run on bourses.

Let’s Dive Deeper

On Sep 29, when the company issued business update for fiscal third quarter, management cited that it has been witnessing robust sales performance, which is likely to help deliver a sturdy quarter. Encouragingly, this also poises the company well ahead of the holiday season. In addition, the Operation North Star initiative along with strong assortment and early encouraging signs before Christmas, have been tailwinds. Management now projects comparable sales growth in mid-teens for fiscal third quarter against a dip of 0.1% in the same quarter a year earlier. Based on impressive sales performance, third-quarter earnings per share are now envisioned in the bracket of 50-70 cents per share against a loss of 18 cents reported in the year-ago quarter. .

Impressively, the Zacks Consensus Estimate for third-quarter sales and earnings are currently pegged at $1.35 billion and 65 cents, respectively. While the sales estimate mirrors year-over-year growth of over 15%, the earnings consensus reflects a significant increase from 18 cents pegged 30 days ago. Moreover, the estimates for fiscal 2020 sales and earnings stood at $6.16 billion and $7.73, respectively. The consensus shows corresponding improvement of 15.8% and 110.6% from last fiscal.

Now shedding light on Big Lots’ growth endeavors, the Operation North Star strategy is focused on core enablers, where management has made important inroads with latest capabilities and tools in several areas of business such as real estate, supply chain and store engagement. Also, this initiative aims at streamlining the company’s cost structure. It expects to significantly surpass its initial cost-reduction target of $100 million.  Management also focuses on improving the performance by enhancing digital capabilities and expansion of the Broyhill brand. The brand is projected to contribute more than $250 million in sales in its first year, with potential to become a $1-billion brand in future. Big Lots is also on track with its pantry-optimization initiative.

Meanwhile, Big Lots’ omni-channel endeavors including e-commerce initiatives, Rewards program and store expansion are noteworthy. The company is focused on enhancing the omni experience by aiming at higher capabilities, removing friction and increasing customer base. Impressively, it is experiencing strong e-commerce growth buoyed by the success of the Buy-Online, Pick-up-In-Store functionality. Moreover, it has been expanding the payment options online with lease-online, pick-up-in-store, the online version of the Easy Leasing program by Progressive and the Big Lots credit card. Management has also been progressing well with the rolling out of The Lot and queue lines to existing Store of the Future locations.

Wrapping it up, Big Lots is poised well for future growth given strength in the transformational efforts including sturdy omni-channel initiatives.

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 also a Zacks Rank #1 stock with a long-term earnings-growth rate of 9.3%.

Best Buy BBY has a long-term earnings-growth rate of 7.7% and currently sports a Zacks Rank #1.

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