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Another Big Quarter For Big Lots

Posted: Mar 05, 2010 15:04 PM by Greg Sushinsky

Tickers in this Article: BIG, BJ, COST, KSS, ROST, TJX

Discounter Big Lots (NYSE:BIG) had another big quarter, as its earnings shot up 34%. The off-price and excess inventory retailer powered through its niche as consumers continued to trade down.

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Big Numbers for Big Lots
Fourth-quarter earnings per share were $1.27 ($1.31, excluding a special item), up from 96 cents in the same quarter a year ago. Net income reached the $105.4 million mark, an increase from the $78.8 million last year. Revenue increased by 7%, to $1.46 billion from $1.37 billion. Same store sales increased 5.1%. The stock edged past the $35 per share mark to a new 52-week high on the news.

Finding its Place
Big Lots continues to rack up impressive earnings numbers, because it has exploited a terrific niche and executes its own space efficiently. Wholesalers, such as Costco (Nasdaq:COST), and BJ's Wholesale (NYSE:BJ), which both reported earnings recently, are good companies which are feeling pressure. Despite impressive sales, especially for Costco, the wholesalers are in stiff competition with grocers for selling food.

Big Lots, by contrast, is a discounter, yet it isn't a wholesaler, department store or a dollar store, so it escapes some of that squeeze. The weaker regular department stores, for example, are feeling heat from strong discounters such as powerhouse Kohl's (NYSE:KSS) and TJ Max (NYSE:TJX). Big Lots' scale in the off-price, excess inventory space works to give it great advantage over small players. Ross Stores (NYSE:ROST) does something similar, though it is more clothing-oriented but also executes in its space beautifully. Though all retail is intensely competitive, the companies like Big Lots that find a niche with something which sets it apart from potential rivals and executes, can thrive. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

Annual Numbers
The full-year numbers for Big Lots were as good as their quarterly ones. Net income was $200.4 million, or $2.42 a share, up from $151.5 million, or $1.85 per share. Revenue was up 2% to $4.73 billion from $4.65 billion. The numbers underscore this company's earnings momentum and growth trajectory.

Big Lots Outlook
Big Lots expects to earn $2.65-2.75 a share next year, so we are seeing unabated growth through the recession into recovery. Big Lots continues to invest in stores, including new store openings planned for this year, as well as its IT system, along with mundane but important details such as cost and inventory controls.

The Bottom Line
Though the stock has broken through to a new 52-week high, it's trading at a reasonable PE of 16. If you can get shares of Big Lots without paying a premium, when the stock or the market corrects, then do so.

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By Greg Sushinsky

Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.

Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.

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