Source: Big Lots.

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Deep-discount retailer Big Lots (NYSE:BIG) reported its fiscal second-quarter earnings this morning, and the company managed once again to keep its revenue growing, recovering from a long downturn that saw Big Lots suffer falling same-store sales in eight consecutive quarters. Yet even though Big Lots now has a small winning streak on the comps front, shareholders remain concerned that the retailer's recovery might not come at the speed they'd prefer to see.

How Big Lots fared in Q2
Big Lots nominally gave investors a positive surprise with its fiscal second-quarter results, with income from continuing operations of $0.31 per share beating projections by a penny. Revenue grew 1.2% from the year-ago quarter to $1.2 billion, which was roughly in line with expectations, and the best news for the quarter was Big Lots' 1.7% growth in comparable-store sales. GAAP earnings also got a nickel per share boost from the closure of Big Lots' operations in Canada, which produced some tax benefits to offset the expenses of the shutdown.

Looking in more detail, though, Big Lots' results showed that the retailer still has plenty of hard work ahead of it. Despite the modest sales growth, Big Lots' operating income dropped more than 20% from year-ago levels, with higher overhead expenses from selling and administrative costs weighing on the bottom line despite stable gross margin figures. Positively, though, Big Lots managed to reduce its outstanding inventory substantially, with a more than 12% drop coming only partially from the liquidation of its Canadian business. Inventory per store in the U.S. dropped by 6%, and that reflects good decision-making on the retailer's part to avoid some of the bloated inventories that retailers in other niches have faced.

Source: Wikimedia Commons.

What's ahead for Big Lots?
Big Lots' management put a positive spin on the numbers, with CEO David Campisi pointing to the retailer's second consecutive quarter of positive comps and concluding that customers are "responding to our improved merchandising strategies and marketing execution." Moreover, the company touted its newly instituted quarterly dividend, which gives the stock a dividend yield of about 1.5% at current prices, as well as a new $125 million share repurchase program.

Yet Big Lots stock was down by about 2% in pre-market trading after the announcement going into its conference call about its results, and Big Lots' guidance for the remainder of the year was the likely culprit for the pessimistic response from investors. Projections for between $2.40 and $2.50 per share for income from continuing operations for fiscal 2014 narrowed Big Lots' previous range of $2.35 to $2.50 per share. But with investors having consensus expectations for $2.48 per share from the retailer this year, Big Lots' guidance wasn't enough to confirm the more optimistic views they had coming into the report.

Even if Big Lots does see its shares lose ground on the day, though, the long-term takeaway from its quarterly report will be that its recovery trajectory remains intact. Even if growth proves to be slower than expected, the fact that Big Lots is growing at all is a win. What long-term investors need to focus on is Big Lots' ability to follow through on initiatives like bringing food products into stores and providing financing for big-ticket items, as those and similar developments will be crucial in sustaining Big Lots' growth in the future.