Entering text into the input field will update the search result below

Big Lots: Switching To Hold After Run

Jun. 05, 2020 3:39 PM ETBig Lots, Inc. (BIG)KIRK, SSI, TUEMQ4 Comments
Equanimity Investing profile picture
Equanimity Investing


  • Big Lots had a knock-out quarter and meaningfully improved its liquidity.
  • Despite economic challenges, sales have shown momentum.
  • At 10x earnings, the valuation is no longer attractive.
  • Switching shares to a HOLD.

Most retailers haven't had anything good to say about Q1 or Q2, except for the sliver of essential business retailers. That would include grocers, pharmacies, discount variety, dollar stores, and select big box retailers. Even though Big Lots' (NYSE:BIG) food sales actually only account for about 14-15% of total sales, the retailer was allowed to keep its stores open, unlike many others. Since my last write-up, multiple competitors to Big Lots have actually filed for bankruptcy; that includes Pier 1 Imports (OTCPK:PIRRQ), Tuesday Morning (TUES), Stage Stores (SSI), and others. Kirkland's (KIRK) could also be on the way out with its operating losses and limited liquidity, and while Bed Bath & Beyond (BBBY) is unlikely to file, its market positioning still continues to struggle. That's certainly not the case for Big Lots, which reported nearly 11% revenue growth year-over-year, mostly driven by organic sales improvement. That also led to $1.26 in EPS for the first quarter versus analyst consensus of only $0.45. I think most of that upside surprise was related to COVID-19, namely being low-bar expectations, as well as the considerable strategic investments management has made over the last two years, specifically being store remodels and improvements in digital infrastructure. In a few ways, Big Lots is certainly winning wallet-share and benefiting from its own strategic investments, competitor attrition, and oddly, due to covid-related forces.

The Right Moves

Interestingly, S&P Global downgraded Big Lots due to "changing merchandising strategies, inconsistent execution, and fiercer competition." While the latter may be true with online pure-plays seeking to gain market share and more companies increasing their omnichannel capabilities, I think management has made a lot of headway on its e-commerce platform and with store pick-up. The former two reasons, while relevant, seem like weaker arguments. Management has purposefully changed its inventory mix in the last few quarters in response to its

ChartData by YCharts

This article was written by

Equanimity Investing profile picture
Equanimity Research helps you focus on protecting your principal and thinking long-term with your investments. I'm long treasuries, select high-quality companies, and will never use margin. As a generalist, I cover multiple sectors with a dividend and non-dividend long-only stock strategy over a 5-10+ year investment horizon. I also cover macroeconomics regarding monetary policy and excessive debt levels globally.All articles/blogs are for informational and entertainment purposes only. Under no circumstances should any of these articles/blogs or any published information be interpreted as investment advice, or as an offer to buy/sell any financial security. Perform your own due diligence. I welcome comments and corrections of all kinds.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.