Bear Of The Day: Big Lots

| About: Big Lots, (BIG)

Big Lots (NYSE:BIG) ended its streak of consecutive beats at two after meeting estimates in most recently reported quarter. Estimates have dropped in a big way, and that makes it a Zacks Rank No. 4 (Sell). It is the Bear of the Day.

Comparable-Store Sales Guided Lower

One big reason estimates have dropped was that the company guided to lower comparable-store sales. Investors don't like to see negative numbers for this metric, but that is just what they got. A range of -2% to -4% means that revenue growth is challenged. The consolidated net sales were guided to a range of +1% to -1%. This means there will be lower sales from older stores and more sales from newer stores.

Company Description

Big Lots offers brand-name closeouts and bargains for customers. They offer a broad assortment of merchandise including consumables, seasonal products, furniture, housewares, toys, and gifts. Big Lots operates more than 1,400 retail stores serving 48 states. Big Lots was founded in 1967 and is headquartered in Columbus, Ohio.

Earnings History

Prior to the most recent earnings meet, the company was able to pull off two straight positive earnings surprises. The October 2012 quarter saw a beat of $0.14, which translated into positive surprise of 58%. The following quarter had a beat of $0.10, or 5% ahead of expectations.

Earnings Estimates Slip

Estimates for BIG fell substantially following the most recent quarter. In April 2013, the Zacks Consensus Estimate for BIG stood at $3.18. In June, the month after the report, the estimate had slipped to $2.95. Since then it has held steady. The 2014 estimate also dropped in a big way, from $3.48 to $3.29. There has been additional weakness as the current 2014 estimate is down two pennies to $3.27.


The valuation picture for BIG is a good one. With estimates moving lower and the stock falling after the most recent quarter, the valuation becomes more and more attractive. The trailing and forward PE of 12.2x show a substantial discount to the industry average of 26.3x and 23.4x, respectively. The price to book multiple if 2.6x is just short of being half of the industry average, while the price/sales multiple could triple before it eclipses the industry average.

The price and consensus chart really shows the story of what is going on at BIG. The estimates have been pointing the wrong way, sliding lower over time. The stock is holding steady despite the lower estimates. That is likely due to value players that think BIG can turn it around.

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