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Why Big Lots Popped Nearly 17% Before Giving Back Gains Friday Morning

By Daniel Miller – Aug 30, 2019 at 12:18PM

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Big Lots reported a large beat on adjusted earnings per share, but investors seem hesitant to buy its turnaround-and-growth story.

What happened

Shares of Big Lots (BIG -8.56%), a discount retailer that offers goods including food, consumables, home products, and electronics, jumped nearly 17% Friday morning after releasing strong second-quarter results -- though it soon gave back some of that gain.

So what

Revenue checked in at $1.25 billion during the second quarter, a 2.5% increase compared to the prior year's result and right in line with analysts' estimates. The 2.5% increase in revenue was slightly more impressive considering comparable-store sales checked in with only a 1.2% gain, lower than analysts' estimates of 1.9%. The discount retailer reported adjusted earnings per share of $0.53, which easily topped analysts' estimates of $0.40 per share.

Front entrance of a retail store.

Image source: Getty Images.

"We are pleased with our performance for the second quarter, which was in line with our sales guidance and ahead on earnings. Going forward, despite the current tariff headwinds, we are confident we will be able to navigate through this environment to deliver a good outcome for 2019," said Bruce Thorn, president and CEO of Big Lots, in a press release.

Now what

BIG Chart

BIG data by YCharts

While management remains confident that its turnaround initiatives are working and that it has new strategies that will drive long-term growth, investors have yet to buy into the growth story. As you can see in the graph above, Big Lots has shed a little over half its value over the past year, which has driven its consensus forward price-to-earnings ratio to a meager six times. And even though the stock popped nearly 17% early Friday morning, the stock quickly gave up those gains as investors digested the information. On the bright side, its stock price decline has also boosted its dividend yield to an enticing 5.45%. If you believe in Big Lots' ability to fend off e-commerce competition, and you are interested in consumer goods retailers, the company offers a cheap valuation and juicy dividend yield, but management has work left to do on its turnaround. 

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Big Lots Stock Quote
Big Lots
$17.83 (-8.56%) $-1.67

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