Improved Operating Results Boost Outlook for Discount Retailer

Big Lots (BIG) has opened sharply higher after reporting a strong fourth quarter.

Fourth-quarter 2018 earnings per share (EPS) of $2.68 vs. $2.57 for Q4 last year were much better than the company’s guidance of $2.20 to $2.40. After a slow start in November, sales turned strong in December and January, with comparable store sales of 3.1% representing the first time since 2010 that comparable store sales were above 3% for two consecutive quarters.

The strength was broad based, with five of the company’s six categories higher. Remodeled stores continue to lead the strength, with comparable sales up high single-digit percentages to low double-digit percentages.

The company guided the 2020 EPS of $3.55 to $3.75 a share, compared to current estimates of $3.64 a share. This guidance appears to be a little conservative, although the company did caution that seasonal business for spring is being negatively impacted by bad weather. However, should we see warmer weather in March, I would not be surprised to see this guidance raised after the company reports first-quarter results.

It is good to see that the investment and strategy shifts made by BIG are starting to pay off. Although the market is not favorably inclined to retailers other than Walmart right now, I look for BIG to outperform in the shares and to outperform in either down or up markets. My new buy under price for BIG is $34. My target is $42.