Big Lots (BIG) posted some disturbing numbers for Q1 2012 when it reported earlier this week. The closeout retailer posted a net income decline of 22% on 5.5% higher sales. Earnings per share and adjusted earnings from continuing operations were both down. For Q2 2012, Big Lots expects to earn a mere 37 cents to 42 cents per share from continuing operations. Same-store sales are expected to range from slightly positive to slightly negative. This is a bit disconcerting, given that consumer spending is up and other retailers fared much better in the first quarter of this year.
What do the numbers translate into for Big Lots? These numbers can be interpreted several ways. For net income to experience such a decline while sales are up shows a bit of a skewed financial landscape for the company. These days, most would be quick to rush to the judgment that the company is top heavy. That's possible. Operating costs are also a large concern. Administrative expenses can eat up a large chunk of change. The company operates five distribution centers across the U.S., along with a multitude of stores. Stores and distribution centers take a lot of employees and management to run smoothly. Wherever the money is going, corporate needs to tighten the company's belt. It will take a rather large change of course to correct numbers as disparate as Big Lots' net income and revenue.
Of course, there is also the fact that Big Lots opened 10 new stores in the first quarter of 2012. Ten new stores means building permits, land, licensing, new employees, employee training, etc. The list goes on and on for the costs of opening each new store. The company should have made adjustments to its other expenses accordingly to avoid this type of report. Or it could have devised some type of strategy to drive sales even higher.
However you look at it, Big Lots had some large expenses in the first quarter. However, sales were up. The question now is whether or not it will be able to carry that sales increase into the second quarter. How many new stores will the company open in the coming months? These things will all weigh heavily on this closeout retailer as we move into the second quarter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.