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Big Lots’ (BIG) Stock Gains on Robust Earnings View for Q2


Shares of Big Lots, Inc. BIG increased 27.2% during the trading session on Jun 26, following a business update on its second-quarter fiscal 2020 performance. Robust demand continued since mid-April, driving quarter-to-date comparable sales through fiscal June ahead of management’s expectations. Second-quarter fiscal 2020 comparable sales are projected to rise by a mid-to-high twenties percentage, reflecting moderation from quarter-to-date trends. This is better than comparable sales growth of 1.2% recorded in the same quarter a year ago.

Management now envisions adjusted earnings per share between $2.50 and $2.75 for the fiscal second quarter, suggesting significant growth from 53 cents earned in the year-earlier quarter. This outlook excludes a nearly $11-per-share gain on sale of its four distribution centers with respect to the sale/leaseback transactions. Impressively, the latest earnings guided range also indicates major improvement from the guidance provided at its first-quarter earnings call on May 29 and the current Zacks Consensus Estimate of 85 cents for the impending quarter.

Management had envisioned earnings per share in the band of 65-80 cents for the quarter on the first-quarter earnings call. The latest outlook also shows an anticipated gross-margin rate higher than the prior year and continued expense discipline, despite including additional costs associated with COVID-19.

On Jun 16, management announced the completion of its earlier-announced sale and leaseback transactions with the affiliates of Oak Street Real Estate Capital, LLC. This includes the company-owned distribution centers in Columbus, OH; Durant, OK; Montgomery, AL; and Tremont, PA. The discount retailer said that it will receive gross proceeds of $725 million from the transactions with net proceeds of roughly $550 million. Apart from strengthening the company’s liquidity, net proceeds will be used for other corporate purposes and to boost shareholder value via share buybacks and high-return growth plans.

Notably, these favorable business trends along with the closure of sale/leaseback transactions, have strongly contributed to the company’s liquidity position. Currently, Big Lots has cash and short-term investments of about $890 million, with no amounts drawn on its $700 million revolving credit facility. Its cash position does not reflect the anticipated tax payments of roughly $170 million in relation to the sale/leaseback transactions. Lower inventory levels on robust sales trends have been further reinforcing its liquidity position.

Furthermore, Big Lots’ assortment is resonating well across all its merchandise categories along with the Big Rewards program. Also, the company looks well poised on solid gains from its transformation efforts. Its transformation initiative, referred to as Operation North Star, focuses on driving top-line growth, cost containment and enhancement in systems and infrastructure.

Buoyed by sturdy endeavors, the Zacks Rank #1 (Strong Buy) company’s shares appreciated 210.1% in the past three months, crushing the industry’s gain of mere 9.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

More Key Picks in Retail

Sprouts Farmers Market SFM has a trailing four-quarter positive earnings surprise of 37.2% and a Zacks Rank #1.

SpartanNash SPTN, also a Zacks Rank #1 stock, has a positive earnings surprise of 76.3% for the last reported quarter.

Dollar General DG has a long-term earnings growth rate of 12.4%. Currently, it carries a Zacks Rank #2 (Buy).

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