Big Lots' Transformation Produces Steadily Positive Comp Sales Growth Story, Yet Remain Sidelined

In its research report on the low-end retail sector, which Deutsche Bank Securities considers as the healthiest in the retail group, the firm commended Big Lots, Inc.

on its success in its turnaround initiative, but also sounded out caution on recent softness in some categories. The firm's analyst Paul Trussell noted that benefits of e-commerce and new tender are yet to be realized. The analyst called Big Lots as a steadily positive growth story. The firm also views the company's shift in strategy away from good deals to what the customer needs as a positive. However, the firm raised a red flag regarding slowing furniture/big ticket data. Also going by 1Q numbers, the firm said key categories such as food, consumables and furniture have hit rough weather, with the weakness offset by strength in seasonal category. According to the firm, to maintain margins, the company should strike a balance between expense management with competitive pricing and e-commerce marketing plans. Deutsche Bank seeks clarity on a new long term plan, as the curtains come down on its current 3-year plan. Specifically, the firm is soliciting information on the company's real estate, new initiatives to spur ownable categories , potential food expansion and additional e-commerce initiatives. Deutsche Bank's earnings outlook for Big Lots is muted, with the earnings estimates for the second quarter of 2016 and the fiscal year 2017 estimates below Street estimates, although its 2016 estimate is in line. As such, the firm said it remains sidelined on the company. Deutsche Bank has a Hold rating and $49 price target on the shares of Big Lots.