Last Friday, shares of Big Lots (NYSE:BIG) touched a new 52-week low before rising to close down just 2.07%. Since early December, Big Lots has trended lower while its management implements restructuring plans. However, after falling so far, is it possible that Big Lots is oversold and ready to rebound?
Big Lots has had a mixed history
The past five years have been quite mixed for the $1.66 billion retailer. During this time-frame, the company saw its revenue rise 16.2% from $4.65 billion to $5.40 billion. Although this looks reasonable, two issues make the company's situation look precarious; how it has grown and how it looks when pitted against competitors.
While growth is generally considered a positive for any company, how it achieves that growth is extremely important. Strong growth usually occurs when store count and comparable-store sales are on the rise while weak growth is defined by a rise in store count partially offset by falling comparable-store sales. This second scenario has plagued Big Lots and its shareholders recently.
During the company's 2011 fiscal year it saw comparable-store sales come in at 0.1%, down from the 2.5% growth management reported in 2010. In 2012, the situation became worse with comparable store sales falling by 2.7%. To make matters worse, this trend has continued into 2013 with comparable store sales falling, on average, 2.5% from the same nine months in the previous year. Despite this shortfall, Big Lots' total sales increased because of the addition, on average, of an extra 88 stores per year from 2010 to 2012.
Big Lots comes up short against competitors
Other discount retailers have significantly outperformed Big Lots in recent years. More recently, Dollar General (NYSE:DG) and Family Dollar (NYSE:FDO) both beat Big Lots on both top-line and bottom-line growth.
Family Dollar saw its revenue rise 40.4% from $7.4 billion to $10.4 billion, more than double Big Lots' growth rate. Family Dollar saw both its store count and its comparable-store sales rise. From 2009 through 2013, Family Dollar's comparable-store sales increased by 4.4%, on average, while the company managed to grow its store count, in aggregate, by 18.9%.
As a result of increased comparable-store sales and a higher store count, Family Dollar experienced an explosion in its net income. Over the past five years, net income rose 52.3% from $291.3 million to $443.6 million. This handily surpasses the 16.9% rise in net income from $151.5 million to $177.1 million that Big Lots reported.
Dollar General's results came in even stronger. Over the past five years, the retailer's revenue rose 53.2% from $10.5 billion to $16 billion. Like Family Dollar, Dollar General benefited from a rise in comparable-store sales and a jump in store count. In 2012 alone, the retailer saw its comparable-store sales rise 4.7% while its store count rose 5.7%, slightly less than the 6% increase in store count the company saw a year earlier.
While Dollar General experienced slightly more revenue growth than Family Dollar, the company's bottom-line growth was worlds apart. Over the past five fiscal years, the business increased its net income by a jaw-dropping 780.5% from $108.2 million to $952.7 million.
As we've seen by this point, the situation at Big Lots looks poor but not quite disastrous. For this reason alone, the company could pull through. Unlike with J.C. Penney or Sears Holdings, Big Lots' sales aren't plummeting and net income isn't coming in at a massive loss.
One thing is for sure though; if management hopes to turn the business around, something must be done. Probably the best strategy is restructuring operations by ceasing store growth and pursuing a consolidation-oriented approach. Last December, management announced a plan to close the company's Canadian segment and focus solely on U.S. operations. While this will decrease revenue it will improve the company's bottom line, which has been adversely affected by the company's Canadian stores.
Moving forward, shareholders should watch for other ways in which management pursues cost reductions while finding innovative ways to draw in customers. It will only be through these two means that management can turn the business around before things go too far downhill.
Daniel Jones has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.