Why Big Lots Stock Popped 16.5%

Q4 earnings astound -- but Big Lots' guidance is underwhelming.

Rich Smith
Rich Smith
Mar 8, 2019 at 11:50AM
Consumer Goods

What happened

Shares of Big Lots (NYSE:BIG) are up big-ly in Friday trading, popping 16.5% higher as of 11:35 a.m. EST after the discount retailer reported estimate-thumping results this morning for its fiscal fourth-quarter earnings.

Expected to earn $2.30 per share on sales of $1.6 billion, Big Lots hit analysts' sales expectations on the nose while earning $2.68 per share.

Origami dollar folded into an arrow pointing up.

Big Lots stock is going up big-ly today. Image source: Getty Images.

So what

That earnings number didn't just beat Wall Street's expectations, though. It beat Big Lots' own previous guidance, which had told investors to expect the company to earn somewhere between $2.20 and $2.40 per share. (Side note: If you were wondering where Wall Street got its estimate, there's your answer. Analysts simply split the difference in Big Lots' own prediction and called it $2.30.)

Same-store sales for the quarter climbed 3.1% year over year. Total sales were down about 2.5%, a result of Big Lots having closed a few stores. Profits, however, were up 9% -- suggesting Big Lots closed the right stores to maximize its profits.

Check out the latest earnings call transcript for Big Lots.

Now what

Big Lots' CEO, Bruce Thorn, noted that "after a slow start to the quarter, we experienced meaningful sales acceleration in December and January." However, management doesn't seem to think this trend will hold true much longer.

New guidance for fiscal 2019 sees "adjusted" earnings declining about 26% year over year in Q1, to somewhere between $0.65 and $0.75 per share. For the full year, Big Lots says pro forma profits will fall somewhere in the $3.55 to $3.75 range -- again, a decline from 2018's $4.04-per-share adjusted profit.

Given the likelihood (and magnitude) of the projected declines (and the fact that Big Lots' numbers will likely fall short of the $0.92 Wall Street wants to see in Q1 and the $3.66 it's expecting for the year), perhaps Big Lots shareholders would be best advised to take advantage of today's rally in the stock and cash in some chips.