Is Big Lots a Big Buy Following Strong Guidance?

After seeing its shares skyrocket 13%, the Foolish investor might wonder if now is the time to get out of it and opt for The TJX Companies. Moving forward, can Big Lots still deliver big returns, or is the company overpriced compared to its competition?

Jun 5, 2014 at 5:30PM


Source: Wikimedia Commons. 

After reporting revenue and earnings for the first quarter of its 2014 fiscal year on May 30, shares of Big Lots (NYSE:BIG) soared more than 13% to close at $42.44 apiece. Given the company's tremendous jump in share price, some investors might get the feeling that the future is bright for Big Lots, but is it possible that rival The TXJ Companies (NYSE:TJX) could be a better play moving forward?

Big Lots beat on revenues, but not quite on earnings
For the quarter, Big Lots reported revenue of $1.28 billion. In addition to being slightly higher than the $1.27 billion management reported the same quarter a year earlier, the company's sales beat out the $1.26 billion analysts anticipated. According to the company's press release, the main driver behind this rise in revenue was a 0.9% improvement in comparable store sales.

While Big Lots did well on a revenue basis, the company's earnings were somewhat mixed. For the quarter, the discount retailer reported earnings per share of $0.06, far lower than the $0.44 Mr. Market wanted to see, and 89% below the $0.56 management reported the same quarter last year.


Source: Wikimedia Commons.

At first glance, this performance appears catastrophic, but when you consider that the retailer's earnings were negatively affected by some discontinued operations, the picture starts to look a bit nicer. During the quarter, management reported a loss from discontinued operations that amounted to $0.44 per share as the business moves to rid itself from its Canadian operations. Excluding this hit, Big Lots would have reported earnings of $0.50, handily outperforming expectations.

But how does Big Lots compared to TJX?
Over the past few years, Big Lots has experienced some rather mixed results. Between 2009 and 2013, the retailer saw its revenue climb 12% from $4.7 billion to $5.3 billion. The biggest contributor to the company's higher revenue was its store count, which rose 15% from 1,361 locations in 2009 to 1,570 by the end of its 2013 fiscal year. This was, however, partially offset by an aggregate 2% fall in comparable store sales over the period.

BIG Revenue (Annual) Chart

BIG Revenue (Annual) data by YCharts.

By themselves, these results appear to be alright, but when you compare the performance posted by Big Lots to how TJX has done, it's clear management has a lot of work ahead of it. During the same five-year timeframe, TJX's revenue jumped 35% from $20.3 billion to $27.4 billion. Like Big Lots, TJX also saw an increase in store count (17% from 2,743 locations to 3,219), but the 26% improvement in comparable store sales was the business's biggest sales driver.

In terms of profits, the difference between the two is even more pronounced. Because of higher revenue and cost-saving efforts that resulted in the business's cost of goods sold falling from 73.8% of sales to 71.5%, TJX's net income has soared 76% from $1.2 billion to $2.1 billion. Over the same timeframe, Big Lots hasn't been so lucky.

BIG Net Income (Annual) Chart

BIG Net Income (Annual) data by YCharts.

Between 2009 and 2013, the company's net income actually dropped 37% from $200.4 million to $125.3 million. In spite of generating greater revenue, Big Lots saw its cost of goods sold increase from 59.4% of sales to 61% while its selling, general and administrative expenses rose from 32.4% of sales to 33.2%.

Foolish takeaway
Based on the data provided, it makes sense why Mr. Market became excited by the results relayed by the management team at Big Lots. In addition to beating on revenue, the company managed to surpass analyst estimates on earnings per share, if you exclude the company's Canadian operations.

However, there are still some things investors should be worried about. While Big Lots did do well during the quarter, its long-term performance has been subpar when placed next to TJX. When you add the business's recent problems to the fact that its P/E ratio of 19.6 is higher than TJX's 18.5, it makes sense to at least consider TJX as a prospect before deciding to pick up a piece of Big Lots.

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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.

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