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Why Big Lots Stock Was Going Much Higher Today

By Jon Quast – Jun 26, 2020 at 12:33PM

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The business has never been more popular.

What happened

Shares of discount retailer Big Lots (BIG 4.80%) were trading much higher on Friday morning after the company provided its shareholders with an unscheduled business update for its current second quarter of 2020. It turns out its business is very popular, its balance sheet is stronger, and it's delivering healthy profits.

Shareholders loved the news. As of noon EDT today, Big Lots stock was 30% higher and hitting fresh 52-week highs.

So what

Before Friday, Big Lots only said that Q2 comparable-store sales were "up strongly." Today, the company announced its Q2 comps should be up by a percentage in the mid to high 20s. That far outpaces the otherwise impressive 10.3% comps increase it reported for the first quarter.

A dollar bill folded into the shape of an upward pointing arrow.

Image source: Getty Images.

This incredible sales growth translates to even better profits. Big Lots didn't highlight numbers according to generally accepted accounting principles (GAAP). But the company expects its adjusted earnings per share to be between $2.50 and $2.75. For perspective, its adjusted EPS was only $0.53 in the second quarter of 2019.

Finally, Big Lots has completed its sale/leaseback transactions. It sold its company-owned distribution centers and immediately began leasing these properties on a long-term contract, freeing up loads of cash. It now has a whopping $890 million on its balance sheet, and no borrowings from its credit facility. That compares with only $54 million in cash in Q2 last year.

Now what

This is all great news for Big Lots shareholders. Business is booming, and even with today's price gains, Big Lots might still be a good value stock. It trades at just six times trailing earnings and has a well-covered dividend yielding over 3.5%.

But investors' attention will be drawn to that pile of money on the balance sheet. How the company uses it could determine whether it is a good investment for the long haul. Unfortunately, it might be hard for Big Lots to think long term with pressure mounting from activist investors.

Jon Quast 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.

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Big Lots, Inc. Stock Quote
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