Big Lots Keeps Moving In The Right Direction

Aug.31.14 | About: Big Lots, (BIG)

Summary

The turnaround at Big Lots continues moving in the right direction.

The company posted an EPS beat, in-line revenues, and a second quarter of improving same store sales.

The stock is pushing all time highs as a result.

Big Lots (NYSE:BIG) is the biggest closeout retailer in the U.S., but it has been struggling over the past few years due to increased competition (mostly from the different dollar stores).

The company on Friday posted its second decent earnings report in as many quarters, as the turnaround at Big Lots continues. Friday morning, the company reported EPS of $0.31 on revenue of $1.2 billion. Both figures were in-line with analyst consensus, EPS was a small beat.

Analyst consensus going into the report was for $0.30 EPS and revenue of $1.20 billion. $0.30 was the high end of the company issued guidance for the quarter, which they came out with back in May of this year.

More impressive was the company's same store sales, which have been turned around and came in at 1.7% (compared to company issued guidance of 1% to 3%). The company is trying to rebuild and restructure itself, as to stop unnecessary spending and help improve the bottom line. This included an initiative in 2013 to sever off sales in Canada and stay focused on the U.S.

The stock has been on a tear this year and is now trading at all-time highs. Previously, the company had broached the $47 line only once and analysts have been turning around and getting bullish on the name heading into this report. Analysts at JP Morgan and Deutsche Bank were all bullish based on company turnaround in notes issued the day before earnings.

BIG Chart

BIG data by YCharts

Last quarter was the first time investors were able to see the company post same store sales that weren't on the decline. They posed a small 0.9% gain. This quarter's number represents a sequential increase of almost 100%. The retailer continues to keep an eye on costs and implementing strategies like initiation of their food business (which they started doing a couple of quarters ago).

While it can be argued that retail isn't the sector that anyone wants to be in right now, we think that Big Lots actually has an advantage to other "typical" retailers in the sense that they're in the middle of a restructuring that is going to be the main driver for the company-engineered results, aside from consumer spending and actual retail interest. While it would be fantastic for retail stores to thrive going forward, the fuel of the fire at Big Lots has been reduced spending, ending their Canadian campaign, and implementing their food based in-store initiative.

Shares closed the week into the holiday weekend down about 1.8%, but we continue to think that the retailer is taking steps in the right direction.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.