Will Omnichannel Accelerate Big Lots' Turnaround Pace?

With an unprecedented spurt in online shopping, Big Lots Inc. BIG has been focusing on its omnichannel capabilities to generate incremental sales. Although these won't be fully operational before the end of 2015, we believe that the company, which is already on a turnaround mode, will get an added boost from these initiatives.

As per recent trends observed over the Thanksgiving weekend, online sales have increased considerably. Moreover, with the rise of online retailers like Amazon.com Inc. AMZN and considerable development in the digital portals of other mass merchandisers like Wal-Mart Stores Inc. WMT and Target Corp. TGT, competition is getting increasingly tough. Hence, need for an online portal is a must for Big Lots.

Nevertheless, we continue to believe that Big Lots' turnaround initiatives will help the retailer to hold its ground. The company, after pulling out of the unprofitable Canadian terrain, has resorted to extensive cost-cutting. Moreover, it is focusing on three important categories – food, furniture and consumables -- to drive up comps. All these categories have displayed increases in past couple of quarters, which makes these substantially profitable options.

In addition, the company has completed the roll out of furniture financing to 1,300 stores and has expanded the assortment in this category by including lawn and garden items, such as patio furniture, gazebos and gas grills, and brand new assortment of fireplaces for the winter.

Management is also adding more brands to its food and consumables categories. The company has revamped its food department by giving it a fresh look for the convenience of customers. Also, the company has been actively rolling out cooler/freezer facility to expand merchandise of food-related items to target food stamp recipients.

In the third- quarter, the company completed the roll out of the facility to 750 stores, to benefit from the crucial holiday season. The company will hold the process over the holiday season and plans to roll out the facility to another 500 stores in fiscal 2015.

The initiatives have resulted in the company witnessing comps growth for 3 successive quarters after seeing decline for 8 consecutive quarters. Comps for the quarter were up 1.4% following a 1.7% and a 0.9% rise in the trailing two quarters, respectively.

Currently, Big Lots' carries a Zacks Rank #3 (Hold).