Why Is Big Lots (BIG) Down 25.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Big Lots (BIG). Shares have lost about 25.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Big Lots due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Big Lots Slumps on Q3 Earnings Miss, Cuts FY18 View

Big Lots reported dismal third-quarter fiscal 2018 earnings wherein earnings lagged estimates for the third straight quarter, while sales beat the same. Moreover, the company lowered its earnings guidance for the fourth quarter and fiscal 2018, which is discouraging. 

Let’s Delve Deeper

This Columbus, OH-based company posted adjusted loss of 16 cents a share compared with earnings of 6 cents in the prior-year quarter. Further, the figure was wider than the Zacks Consensus Estimate of a loss of 1 cent. The bottom line also fell short of the company’s guidance for earnings of 4 cents to a loss of 6 cents.

Net sales grew 3.6% to $1,149.4 million, surpassing the Zacks Consensus Estimate of $1,139 million. Top-line growth was backed positive comparable store sales (comps) and the fiscal calendar shift, partly negated by reduced store count. Comps improved 3.4%, in line with the company’s guidance of 2-4% increase. This marked the second consecutive quarter of positive comps.

While the company’s gross profit increased 3.5% year over year to $459.2 million, gross margin contracted 10 basis points to 39.9%. This was due to high seasonal markdown rate and elevated costs owing to higher tariff. In the reported quarter, SG&A expenses came in at $436.8 million, up 7% year over year.

Operating loss was $9.6 million compared with operating income of $5.8 million in the prior-year quarter. 

Other Financial Details

The company ended the fiscal third quarter with cash and cash equivalents of $61.9 million. Inventories were up 3.4% to $1,073.9 million. Total shareholders’ equity was $592.7 million. Long-term obligations under the bank credit facility totalled $488 million. Big Lots’ capital expenditures for the fiscal third quarter were $76 million compared with $42 million in the prior-year quarter.

Year to date, the company has returned about $139 million to shareholders in the form of dividends and share repurchases. Big Lots has announced a cash dividend of 30 cents per share on Dec 4, payable on Dec 28, 2018. This amounted to dividend payment of nearly $12 million made in December. In the fiscal third quarter, Big Lots opened 15 outlets and shut 15. The company ended the quarter with a total number of 1,415 stores.

Guidance

Following a soft fiscal third quarter and a flattish start to the fourth, mainly in November, the company lowered its comps and earnings guidance for the fiscal fourth quarter.  Further, the company trimmed its earnings outlook for fiscal 2018.

For the fiscal fourth quarter, comps are now expected to be flat to up 2%. Due to soft comps, lower gross margin and higher expenses compared with last year, the company trimmed its earnings view. Management now expects earnings of $2.20-$2.40 per share, down from the previous guidance of $2.90-$3.00. The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at $1.10 per share.  

For fiscal 2018, adjusted earnings per share are projected to be $3.55-$3.75 compared with the prior guidance of $4.40-$4.55. We note that the Zacks Consensus Estimate for the fiscal is pegged at $4.44, which might witness a downward revision. 

Big Lots expects comps to increase roughly 1% in fiscal 2018. Moreover, the company expects cash flow generation of nearly $10-$20 million, which is significantly lower than $100 million anticipated earlier.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -21.38% due to these changes.

VGM Scores

At this time, Big Lots has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Big Lots has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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