Big Lots Q4 Earnings Miss - Analyst Blog

Shares of Big Lots Inc. BIG rallied 23% on the index following the company's announcement of a $125 million share repurchase program as well as lower-than-expected costs associated with closure of Canadian operations. These offset the dismal fourth quarterly fiscal 2013 performance.

The company's fourth quarter fiscal 2013 adjusted earnings came in at 98 cents per share, way below the Zacks Consensus Estimate of $1.39 per share and fell 53% year over year.

U.S operations contributed $1.45 per share, whereas Canadian operations reported a loss of 47 cents in the quarter.

Including certain one-time items and discontinued operations, Big Lots' earnings from operations was 1.39 cents for the fourth quarter, down 33.2% from the prior-year quarter.

For full year, adjusted earnings came in at $1.75 per share, lagging the Zacks Consensus Estimate of $2.20 and down 41.3% year over year.

Further, Big Lots, which competes with Costco Wholesale Corp. COST, Sears Holdings Corp. SHLD and Dollar General Corp. DG,  provided outlook for first-quarter fiscal 2014 and declared that its exit from the unprofitable Canadian Markets is on schedule and costs associated with the same have been lower than expected.

Adjusted consolidated net sales decreased 6.2% year over year to $1,636.3 million but was ahead of the Zacks Consensus Estimate of $1,606 million. For the full year, adjusted consolidated net sales came in at $5,301.9 million, which beat the Zacks Consensus Estimate of $5,253 million but was down 1.2% year over year.

Net sales for its continuing U.S. operations fell 7.3% to $1,571.9 million in the quarter. However, U.S. comparable-store sales (comps) declined 3%.

The company's gross profit fell 9.8% to $625.7 million while gross margin decreased 150 basis points (bps) to 38.2%. Operating loss was $108.2 million, down 45% from the prior-year period.

Update on Exit from Canada

By first-quarter fiscal 2014, the company expects to shut down all primary operations and stores, and report these as “discontinued.” In the third quarter of fiscal 2013, Big Lots had announced its decision to wind up its operations in the unprofitable Canadian markets. Notably, the company had ventured into Canada in 2011 with the acquisition of Liquidation World Inc.

However, after careful business evaluation, Big Lots decided to move out of Canada and focus on other areas such as e-Commerce and omnichannel capabilities.

For the first quarter of fiscal 2014, Big Lots anticipates loss from Canadian operations to be around $37–$41 million or 64–71 cents per share.

Guidance

Big Lots expects adjusted earnings per share from continuing operations to be 40–45 cents for first-quarter fiscal 2014 while comps are expected to be in the range of slightly positive to slightly negative.

For fiscal 2014, Big Lots expects adjusted earnings from continuing operations in the range of $2.25–$2.45 per share. Comps are expected to range from flat to a rise of 2%. Net sales are expected to remain flat to fall slightly.

Share Repurchase

On Mar 4, 2014, Big Lots' board of directors approved a share repurchase program worth $125 million, which will commence from Mar 11, 2014.

Store Update

During the quarter, Big Lots opened 3 stores in the U.S and shuttered 35 stores.  At the end of the year, the company operated 1,493 stores in the U.S. For fiscal 2014, the company expects to open 30 new outlets and close 50 stores.

Other Financial Details

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $68.6 million, inventories of $915.0 million and shareholders' equity of $901.4 million. The company, at the end of the quarter, had $77.0 million in its long-term obligations under the bank credit facility.. The company expects to generate $165 million in consolidated cash flow in fiscal 2014 whereas $140 million after removing the impact of closure of Canadian operations.