Will Big Lots’ Investors Continue to Reap Big Rewards?

Shares of the Columbus, Ohio-based company, Big Lots (BIG), have surged 5.7% to close at $69 on June 22.

Big Lots is a retail company that sells a full range of goods, from groceries and household items to home furnishings and toys. Big Lots’ strong business growth endeavors, including efforts to boost online sales, have been helping the company to drive growth.

With a market capitalization of $2.39 billion, BIG has gained 54% in the past six months and 104.6% over the past year. (See Big Lots stock chart on TipRanks)

Strong Retail Industry Growth

As the economy accelerates its pace of recovery following the pandemic-driven closures, retail sales in the United States look poised to grow this year.

Per a June 9 report from National Retail Federation (“NRF”), retail sales are set to increase between 10.5% and 13.5% in 2021 to reach more than $4.44 trillion. Non-store and online sales, which are included in the total figure, are expected to grow between 18% and 23%.   

Notably, the report stated, “The combination of vaccine distribution, fiscal stimulus and private-sector ingenuity have put millions of Americans back to work. While there are downside risks related to worker shortages, an overheating economy, tax increases and over-regulation, overall households are healthier, and consumers are demonstrating their ability and willingness to spend.”

Reflective of the numbers, Big Lots is well-positioned to gain from the growing retail spending.

Stellar Q1 Earnings Results & Q2 Projections

Last month, Big Lots reported blockbuster performance in the first-quarter, with both revenues and earnings outpacing the consensus estimate. The company delivered its fifth consecutive sales and earnings beat.

The company posted Q1 adjusted earnings of $2.62 per share and beat Street estimates of $1.69.

Net revenues jumped 13% year-over-year to $1.63 billion and surpassed analysts’ expectations of $1.53 billion.

The results were driven by strength in the company’s underlying Operation North Star initiative and a positive customer response to the third round of stimulus distributions.

As Big Lots moves through the fiscal second quarter, the company sees growth in its core underlying business, aided by the Operation North Star strategic initiative.

Big Lots CEO Mr. Bruce Thorn said, “Big Lots is growing in a productive and sustainable manner and we are doing so knowing that our goal is to create the best value for our customer so that she can Live Big and Save Lots. Our growth is driven by our Operation North Star, but is fulfilled by our 37,000 associates across our stores, the distribution centers, and in our home office. I am so proud to be a member of this team and I am deeply thankful for their unwavering commitment.”

For Q2, the company projects EPS to range between $1.00 and $1.15. Comparable sales are forecasted to decline by a low double-digit indicating a two-year stacked comparable sales increase of around 20%.

Big Lots’ Efforts to Drive Business Growth

Given the changing market dynamic, the company has been going all out to strengthen its business and boost online sales.

On June 22, Big Lots announced the expansion of its apparel offerings from major leading brands like One World, Como Vintage, and Weekend Soul, Reebok, among many others. The products are available in all its stores and online at BigLots.com.

Thorn commented, “We know our savvy BIGioniare shoppers feel like a million bucks when they get to hunt in our stores for the best deals in town, and we want them to feel the same way when they put on our high quality and affordable new apparel collections – perfect for everybody, every day.”

Additionally, Big Lots’ transformation initiative, referred to as Operation North Star, has been yielding results. The initiative, which encompasses driving top-line growth, cost containment, and enhancement in systems and infrastructure, has been reaping results for the company.

Further, the company’s Big Lots’ Store of the Future and new stores strategy are worth a mention. It has been investing in new stores and distribution centers to capitalize on higher sales driven by the recent spending in home improvement.

In March, the company announced its plans to open 50 to 60 new stores in 2021.

Rewarding Shareholders through Dividends

Big Lots has a solid dividend history. The company is generating enough cash and earnings to cover the dividend distributions to its shareholders.

The company ended the first quarter with cash and cash equivalents of $613.3 million. Total shareholders’ equity was $1.3 billion. As of May 1, the company generated net cash of $204.3 million from operating activities.

On May 28, Big Lots declared a quarterly dividend of $0.30 per share, to be paid to stockholders on June 25.

TipRanks Metric

Big Lots scores a 5 of 10 from TipRanks’ Smart Score rating system, indicating that the stock is likely to perform in line with market averages.

Analysts’ Views

Overall, the stock has a Hold consensus rating based on 3 Holds and 1 Sell. The average analyst BIG price target of $61 implies 11.6% downside potential from the current levels.

Following the Q1 earnings release, KeyBanc analyst Bradley Thomas reiterated a Hold rating on the stock.

The analyst said, “While 2Q is off to a good start (with EPS guidance spanning the consensus), we expect significant moderation ahead due to more difficult comparisons and waning stimulus. While BIG did not provide full-year EPS or sales guidance, management plans to reaccelerate store growth in 2021, with a continued focus on the rollout of the Company’s various initiatives.”

Another analyst, Deutsche Bank analyst Paul Trussell, reiterated a Hold rating on the stock and decreased the price target to $65.00 from $66.00. This implies 5.8% downside potential to current levels.

Trussell said that though the company reported better-than-expected results, he remains cautious due to lack of visibility about the company’s long-term earnings algorithm.

Overall, the analysts are cautious about Big Lots’ future prospects. Despite the company’s strong efforts to improve its revenues, the future seems iffy for this retail company.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities