It used to be that going into a Big Lots (NYSE:BIG) was kind of a gamble. There wasn't even a guarantee the place would be all that clean when you walked in the door, let alone that they'd have anything you'd want to buy. That's changed quite a bit in recent years, and the company has made some real changes that have brought a whole new value to the value-focused chain. Its third-quarter results are likely to offer up some further insight on how the company's been doing of late.
Surprising Numbers for a Store Like This
Big Lots brought out fresh guidance on the numbers it expects to see for the third quarter—a move that's something of a minor feat itself these days—and the numbers look excitingly positive. The company expects comparable sales gains somewhere in the “mid-teens” for the quarter (which is, theoretically, anywhere between 13% and 17%) and that will help produce diluted earnings per share (EPS) numbers somewhere between $0.50 and $0.70, which is a fairly solid return.
It's especially welcome news after you remember that Big Lots posted an adjusted net loss of $0.18 the same time the previous year. It's also welcome news considering where the current estimates have the company placed; a Thomson Reuters poll of analysts was expecting $0.21 per share earnings for the quarter. It's worth noting, though, that the analysts' estimates tend to keep “special items” out of the equation, so that may account for at least some of the discrepancy.
Interestingly, these numbers come out on the heels of earlier reports from the company—just a month ago, no less—that said the company wasn't going to bring back financial guidance for 2020. It apparently believed that it didn't have “sufficient visibility” in the pandemic to make those calls, and pulled both its first-quarter and full-year figures back in March.
Familiar Causes Guiding the Gains
The numbers presented are both significantly ahead of the latest consensus estimates and the previous year's numbers, so a closer look at what's driving these numbers should prove informative. The biggest cause seems to be an active push toward improvement on the company's part known as “Operation North Star.” The measure is focused on driving both sides of the profit equation at once, pushing for both cost-containment measures to reduce expenses, top-line growth to improve revenue, and improvements in overall systems and infrastructure to help drive both.
Additional reports suggest the company is pushing online shopping particularly hard, as its e-commerce proposition improves greatly. That's the same strategy that gave Target (NYSE:TGT) such a boost in recent months; the notion that robust online shopping tools are merely a nice-to-have extra is dying on the vine. There's simply too much proof now that such platforms are a vital necessity going forward, and with the coronavirus still a presence, it will likely be a necessity going forward.
The company has also made significant gains with its Broyhill furniture brand; in just the first year, it's expected to add a hefty $250 million to sales, and down the line—though how far no one's quite sure—it has the possibility to bring in a billion or more annually. Finally, the company was also well-suited for pandemic operations, as it's recently reworked its pantry optimization operations to better ensure availability of products, and its focus on basics and essential items gave it room to operate as well, much in the same way Target did.
It's Beginning to Look a Lot Like Profitability
Finally, of course, there's the elephant in the room: the holiday shopping season. This particular elephant is a huge wild card this year, mostly because there's never been a holiday shopping season that looks quite like this one before. The massive slug of Black Friday sales are likely out of the picture, and the big jump just ahead of Christmas will likely be out too; people will be avoiding crowds this year, by combination of government mandate and an abundance of caution.
However, the loss of those two big jumps should be supplemented nicely by growing online shopping and more spread-out doorbuster deal events. In the end, the holiday shopping season may look about the same, just over a much longer period of time than normal. This leaves stores like Big Lots ahead of the curve, with greater availability, more necessities to protect against lockdown closures, and expanded online shopping presence. Seeing Big Lots meet its goals for the quarter, therefore, are well within the realm of possibility, making this one a good buy going forward.
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