Shares of Big Lots (BIG 8.38%) soared 23% following the release of the company's fourth quarter earnings. While earnings per share of $1.45 came in $0.05 above analyst expectations, the big picture that forced shares of Big Lots downward in recent months has not really changed significantly: same store sales are down, management has steadily disappointed the investing community with guidance, and the company has retreated from Canada. It should be noted that none of these concerns have really been addressed since shares of the company plunged following third quarter's results. This also has important ramificaitons for Foolish investors looking to pick up shares in the discount retailer.  

Same store sales continue to slide
While in-line with management's guidance, Big Lots' 3% decline in same store sales (SSS) is no cause for celebration. It is true that retail had a weak end to 2013, but Big Lots' results continue to lag the competition in the most recent quarter:

CompanyDomestic SSS Growth
Big Lots (3%)
Costco* 5%
Wal-Mart* (0.4%)
Target (2.5%)

Sources: Big Lots, Costco, Wal-Mart, and Target fourth quarter earnings releases
* Costco and Wal-Mart SSS results exclude impact of gasoline

Interestingly, shares of Costco (COST -0.32%) were punished earlier this week for "disappointing" results despite SSS growth of 5%. This illustrates how much more the market's expectations have to do with share price movement in the short term than the results themselves.

Going forward, Big Lots is projecting flat to 2% SSS growth in 2014.

Disappointing guidance
Big Lots' management created a bit of a credibility problem in 2013, as guidance was revised downward steadily throughout the year:

Guidance DateManagement's 2013 Adjusted non-GAAP EPS Outlook
Q4 2012 $3.05-$3.25
Q1 2013 $2.87-$3.12
Q2 2013 $2.80-$3.05
Q3 2013 $2.40-$2.55
Q4 2013 Actual $2.45

Source: Big Lots quarterly earnings releases

While actual EPS was in the range provided at the end of the third quarter, it was in the lower half of the guidance range that had been lowered every quarter during the year.

With that context, the fact that analysts were projecting 2014 adjusted EPS of $2.44, which is at the top end of management's guidance of $2.25-$2.45, should be cause for concern. Management also expects total revenue to be "flat to slightly down." A weak starting point for 2014 guidance and a track record of lowering guidance is a dangerous combination.

Canada retreat less costly than expected
One of Big Lots' fourth quarter highlights in its earnings release was the "wind down of Canadian operations remains on schedule and closure activity resulted in a lower loss than originally anticipated." It is a stretch to call a loss incurred when retreating from a multi-national operations to a strictly domestic business a "highlight," even if the loss was lower than expected.

While Wal-Mart (WMT -0.15%) is generating over a quarter of its revenue abroad and generating profit from its international operations, Big Lots' experiment in Canada ended in failure. This is significant because the company is incurring a cash drain from the wind down of its Canadian stores, but it also signals that the company is no longer considering international opportunities for growth. This limits the future growth opportunity for Big Lots to domestic expansion.

Share buyback
One piece of unequivocally good news in Big Lots' fourth quarter is the announcement of a sizable share repurchase program. A buyback both returns value to shareholders in a tax-efficient manner and also demonstrates management's confidence that share prices are low. A $125 million buyback for a company with a market capitalization of $2.1 billion amounts to over 5% of shares outstanding.

However, there are two points to note. First, $125 million is significantly in excess of the $69 million in cash that Big Lots reported this quarter. As a result, such a buyback would require either the issuance of debt or a substantial portion of the company's projected $140 million in cash from operations forecasted for 2014 in lieu of investment in growth.

Second, a return of 5% to shareholders is by no means exceptional in the discount retail world. Last year, Target (TGT -1.02%) returned almost 7% to shareholders through a mix of dividends ($1.0 billion) and buybacks ($1.5 billion) compared to a market capitalization of $38.5 billion.

Looking ahead
Shares of Big Lots surged simply on the relief that the company's results aren't completely in a free fall. However, there are plenty of pressures that continue to plague the company and are expected to remain for the foreseeable future. With that ongoing pressure, it is easy to find better investment alternatives whether you are looking for growth or income within the discount retail space. Look to world-class companies like Costco for a higher probability of beating the market over the next few years.