It was a bit of a head-scratcher at first. Big Lots (NYSE:BIG) got crushed 17% on Friday following a slight miss on sales and earnings for the fiscal third quarter. My first thought was: Who cares about the third quarter? It is the seasonally weakest period by far for BIG, the numbers were still decent booking its third quarter in a row of same-store sales, and the company reaffirmed its full year outlook for EPS between $2.40 and $2.50 per share and actually raised its guidance range for the far-more important holiday quarter from $1.70 to $1.76 to a range of $1.70 to $1.80 in EPS. But then a quick listen to the conference call, something not enough retail investors pay attention to, may have revealed what all the panic was about.
During the call, the good news actually continued - for most of it. CEO David Campisi pointed out that it was the first time in three years BIG comp'd positive. He added, "Based on our sales results which were a continuation of a positive spring, we believe our business is becoming more consistent and reliable for [our customer.]" Food sales were up double digits, furniture sales were up double digits, and there were a lot of other encouraging areas mentioned. This spilled over into November for the first three weeks.
Then, the real word everybody was waiting for - Thanksgivings and Black Friday were not only disappointing but actually negative on a year over year basis. The company expects December to make up for it but on what basis? How valuable is the fourth quarter guidance when it seems to be based on faith and certainly not based on to-date sales. The company completed its share buyback program but didn't announce a new one. One might think if the company was that confident about the fourth quarter it would be anxious to put its money where its mouth is and buy even more shares.
During the Q&A, CFO Tim Johnson stated, "The last 2 weeks of November were soft for us and our data is that they were soft across retail .. those last two weeks were down slightly to the prior year." Earlier his CEO said the first three weeks of November were positive. Technically they both may be true, but Johnson rattled off what sounded like excuse after excuse as to why Black Friday weekend was soft. It apparently didn't sit well with investors.
So should you sell or go long BIG? If I was already in I would probably just hold my nose and hold, hoping for the best. It does seem cheap now if BIG hits its guidance but I don't see a super compelling reason to buy either unless the stock price falls cheaper first. Maybe I'm just a nervous Nelly, too, with the panic crowd.
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