Foolish Forecast: Big Lots in the Big Time

Broad-line closeout retailer Big Lots (NYSE: BIG) will report first-quarter 2007 financial results on Thursday, May 31.

What analysts say:

• Buy, sell, or waffle? Big Lots can't seem to win with Wall Street. Despite consistently beating expectations recently, the deep-discount chain still has six of the eight analysts who cover it rating it a hold. The other two are evenly split between buy and sell recommendations.
  
  
• Revenues. Analysts are anticipating sales growth of 3.6% to $1.1 billion.
  
  
• Earnings. Profits, meanwhile, are expected to surge 54% to $0.20 per share.

What management says:
Chairman and CEO Steve Fishman thinks Big Lots is on a winning streak with its "What's Important Now" strategy: "Quarter by quarter, our execution improved and the merchandise offering in our stores got better and better ... I firmly believe that the WIN strategy is working, and we're seeing the benefits of our efforts in these results." The execution included shutting down underperforming stores, slashing overhead costs in the executive suite, and ridding itself of frozen foods -- contrary to competitors like Dollar Tree (Nasdaq: DLTR), which are expanding their consumables selections -- which has helped boost margins.

What management does:
Big Lots has regained a sure footing by controlling its inventory flow better, allowing it to minimize the amount of merchandise that stores had to put on clearance. While it closed stores and cut back inventory levels 8% last year, the retailer also enjoyed a 5% increase in same-store sales in the fourth quarter, as well as an improvement in gross margins.

Margin	01/06	04/06	07/06	10/06	02/07
Gross	39.1%	38.9%	38.7%	38.8%	39.9%
Operating	0.9%	0.9%	1.4%	2.2%	4.1%
Net	-0.2%	-0.1%	0.3%	0.7%	2.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The Big Lots story continues to improve. Although its share price has risen by around 40% since last quarter's numbers were released, and around 150% over the past year, it continues to trade at an enterprise value-to-free cash flow ratio that's about 50% less than its nearest rival, Family Dollar (NYSE: FDO). With its EV-FCF ratio that's still below 10, despite the price appreciation already factored in, Big Lots looks like it still has more big moves in store.

Related Foolishness:

• Big Lots' Big Day
• Foolish Forecast: Big Lots Winning Big
• Foolish Fundamentals: Margins

Big Lots has earned a one-star rating from Motley Fool CAPS, the investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. Family Dollar is a Stock Advisor selection. Dollar Tree is a former Inside Value pick. The Motley Fool has a disclosure policy.