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Big Lots Inc. Posts Highest Quarterly Growth Pace Since 2011

By Demitri Kalogeropoulos - May 27, 2016 at 2:23PM

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Profits soared in the first quarter as the discount retailer's merchandising initiatives met an enthusiastic shopper base.

Image source: Big Lots.

Discount retailer Big Lots (BIG -8.43%) posted first-quarter results on Friday, May 27, that included its strongest sales growth pace in years. In addition, earnings soared as the company held the line on price cuts and kept operating expenses in check.

Here's how the big-picture results stacked up against the prior year: 

Metric 

Q1 2016 Actuals

Q1 2015 Actuals

YOY Growth

Revenue

$1.31 billion

$1.3 billion

3%

Net income

$39 million

$32 million

20%

Earnings per share

$0.79

$0.60

32%

YOY = year over year. Data source: Big Lots' financial filings.

What happened this quarter?

Big Lots' comparable-store sales rose 3% to hit the high end of management's guidance, marking a solid rebound from the prior quarter's less than 1% uptick. That produced the retailer's ninth consecutive quarter of comps growth (following two straight years of declines in 2012 and 2013).

Here are the other key highlights of the quarter.

  • The 3% comps gain was Big Lots' best quarterly growth pace since the fourth quarter of 2011.
  • Big Lots' store count decreased slightly, which pulled sales growth to just below the 3% comps gain.
  • Gross margin held steady at 39% of sales.
  • Expenses grew at a slower pace than revenue, leading to a jump in bottom line profitability. Net income margin improved to 2.9% of sales from 2.5% a year ago.
  • Inventories ticked lower due to the declining store base and flat inventory numbers at the remaining locations.

What management had to say

"I'm very pleased with our first quarter results," CEO David Campisi said in a press release. Executives highlighted the success they had at improving the customer experience by focusing on segments like furniture, while at the same time producing higher profitability. "[Our core customer] continues to respond positively to our strategic focus on ownable and winnable merchandise categories, improved merchandise presentations and more consistent in-store execution."

Looking forward

Big Lots didn't raise its 2016 sales growth guidance even though the first quarter results show solid momentum in the business. The company still projects "low single digit" comps for the year (comps of around 2% in the current quarter).

However, the retailer is on pace to produce significantly higher earnings than management had initially forecast. Adjusted profit should now come in as high as $3.50 per share, representing 16% growth over 2015 results. Back in March, Campisi and his team capped their earnings target at $3.35 per share, or just 11% growth.

Investors can look for Big Lots to try to extend the merchandising initiatives that worked so well this quarter to keep customer traffic levels rising. A new private-label credit card is also in the works that might boost results beginning this summer.

Over the longer term, executives are pouring resources into building out the company's e-commerce infrastructure. To date, online sales aren't contributing anything to Big Lots' growth, and they aren't expected to help much for the full year. Yet the recently launched website is just now scaling up its product offerings -- at a conservative pace. "We know what [our core customer] wants to buy from us online and we've got one chance to get it right," Campisi told investors in March. 

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