Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



This Big Discount Retailer Offers Small Potential

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

If you invest in the stock market, then you have big hopes and dreams. That being the case, you might want to avoid Big Lots (NYSE: BIG  ) . This company is a victim of increased competition in a weak macroeconomic environment which has led to nine consecutive quarters of comps declines. Let's take a look at the Big Lots situation, decide whether there is hope, and determine if another discount retailer offers a better investment opportunity.

Recent results and expectations
In the second quarter, net sales increased 0.6% year over year. On the surface, this looks like a positive. However, it's easy to grow sales when a company adds 51 net stores. On a comparable store basis (stores opened at least 15 months in this case), comps declined 2.2% in the United States.

On the other hand, comps in Canada increased 8.3%. Considering the saturation in the United States, Canada might be the land of hope for Big Lots. It has 75 Liquidation World and LW stores in Canada, and it plans on opening two stores and rebranding four more in 2013.

On the domestic side, Big Lots plans on opening 54 stores while closing 49. This decision might sound counterproductive, but it could act as a catalyst for both the top and bottom lines. It will increase Big Lots' exposure in higher growth areas and eliminate underperforming locations.

In the second quarter, Big Lots saw increased sales in the following categories: Seasonal (16.9% of sales), Furniture (16.70% of sales), Consumables (18.8% of sales). It saw declines in these categories: Food (14.1% of sales), Home (14.6% of sales), Hardlines & Toys (10.3% of sales), Electronics & Other (8.6% of sales).

To fuel growth, Big Lots is focused on expanding its coolers and freezers (partially to accommodate food stamp recipients), offering a furniture financing program, changing its loyalty reward program, and remodeling locations. 

Despite these potential growth drivers, Big Lots recently lowered its fiscal year 2013 guidance for the second time. It now expects adjusted EPS of $2.80-$3.05 versus an earlier expectation of $2.87-$3.12. Big Lots now expects net sales to come in flat to up 1% versus an earlier expectation of 1%-2%.

While Big Lots has potential to turn things around thanks to its strategic initiatives, it would still be a higher risk play than two other discount retailers, especially one in particular.

Dollar stores equal big potential
With a 2% payroll tax increase in effect and the consumer hesitant, discount retailers must fight to win customers. Luckily for Dollar General (NYSE: DG  ) and Family Dollar (UNKNOWN: FDO.DL  ) , many consumers flocked to dollar stores after the 2008 recession, hungry for bargains. Dollar General and Family Dollar have seen continued momentum since then. 

Unlike Big Lots, Dollar General has performed exceptionally well when it comes to comps with 23 consecutive years of comps growth. Dollar General attributes this strong performance to low prices, remodels, and strategic locations. Unfortunately for Big Lots, Dollar General is also focused on offering more in the way of food. In the second quarter, Dollar General's net sales improved 11.3% and its earnings grew 11.3% year over year. Furthermore, Dollar General expects FY 2013 sales to increase 10%-11% and comps to grow 4%-5%. 

Despite the dollar stores often being grouped together, there are differences. For instance, while Family Dollar is likely to present a better investment opportunity than Big Lots, it's not likely to offer a better investment opportunity than Dollar General.

Family Dollar's fourth quarter comps came in flat, after the company had expected a 2% comps increase. Flat traffic and average consumer transaction value were the primary reasons for the uninspiring performance. The good news is that consumable sales improved 8.3% year over year. Since consumables have become the primary focus for many discount retailers, this is a positive sign, and Family Dollar will likely attempt to build on it. However, Family Dollar's FY 2014 guidance, while impressive, isn't as motivating as Dollar General's. Family Dollar expects net sales to grow in the mid-single digits, and for comps to grow in the low-single digits.

The bottom line
Big Lots might show comps improvement in the future, but it must contend with fierce competition and a tepid consumer. Furthermore, guidance has been reduced. It would make sense to consider a discount retailer that has seen comps growth for 23 consecutive years and expects strong sales and comps growth for the year in Dollar General. 

One company that offers huge potential!
This incredible stock is growing incredibly fast and you won't want to miss out on it's potential. Watch our jaw-dropping investor alert video today to find out why The Motley Fool's chief technology officer is putting $117,238 of his own money on the table, and why he's so confident this will be a huge winner in 2013 and beyond. Just click here to watch!


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2690445, ~/Articles/ArticleHandler.aspx, 8/25/2016 7:25:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,481.48 -65.82 -0.35%
S&P 500 2,175.44 -11.46 -0.52%
NASD 5,217.70 -42.38 -0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/24/2016 4:02 PM
BIG $55.32 Down -0.24 -0.43%
Big Lots CAPS Rating: ***
DG $91.79 Up +0.30 +0.33%
Dollar General CAPS Rating: ***
FDO.DL $0.00 Down +0.00 +0.00%
Family Dollar Stor… CAPS Rating: ***