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Big Lots (BIG) Down Above 6% on Soft Sales Trends in January

Shares of Big Lots, Inc. BIG have declined more than 6% in after-hours trading on Jan 10. Management cautioned against near-term headwinds due to the coronavirus omicron variant and its impact on consumer behavior. Since, early January 2022, ZUMZ has been witnessing soft traffic and sales trends, induced by the spread of the omicron strain. This might affect BIG’s fourth-quarter fiscal 2021 performance and investors did not perceive this news well.

However, management stated that it looks forward to exit another successful year. Also, Big Lots performed well during the holiday period, and results were impressive through the end of fiscal December.

Q4 Updates

Speaking of its fourth-quarter fiscal 2021, BIG has recorded two-year comparable sales (comps) growth of about 9% on a quarter-to-date basis through the end of fiscal December. Management highlighted that Big Lots’ performance was tracking at the upper end of its projections through the end of fiscal December.

Management had further said that it has bought back 1.6 million shares worth $70 million for the quarter-to-date period. Big Lots had about $180 million available under its $250-MILLION share repurchase authorization.

However, softening of traffic and sales trends since early January has raised an alarm. Given the continuation of the existing trends with bad weather conditions, management anticipates registering a two-year comps rise in flat-to-low-single-digit percentage for fiscal January, which falls below the earlier expectations.

For the fiscal fourth quarter, earnings per share are envisioned in the band of $1.80-$1.95, down from $2.59 earned during the final quarter of last fiscal. This updated view also falls below the current Zacks Consensus Estimate of $2.20 for the same quarter and is likely to see downward revisions in the coming days.

Long-Term Goals

Coming to BIG’s long-haul targets, management believes in achieving sales of $8-$10 billion, buoyed by higher merchandise sales productivity, sturdy e-commerce growth and nearly 500 net store openings.

Big Lots further strives to accomplish an operating margin of 6-8% in the long run on expanded gross margin and expense leverage. Management also cited achieving a return on invested capital target of 20-25%.

Management is quite optimistic about the Operation North Star initiative, which is on track to boost shareholder value.

Wrapping Up

Big Lots’ Operation North Star plan focuses on driving top-line growth, cost containment, and enhancement in systems and infrastructure. Management continues to experience strength in the Operation North Star strategy and is focused on its key drivers, including customer growth, merchandise productivity, e-commerce and store count. Big Lots is experiencing strong e-commerce growth, buoyed by the success of the “Buy Online Pick-up In Store” functionality and curbside pickup.

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The currently Zacks Rank #3 (Hold) stock has gained 5.4% in the past month against the industry’s 1.7% dip.

Key Picks in Retail

Some better-ranked stocks are Zumiez ZUMZ, Tapestry TPR and Costco COST.

Zumiez, a global lifestyle retailer, currently flaunts a Zacks Rank #1 (Strong Buy). Shares of ZUMZ have increased 12.5% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Zumiez’s fiscal 2022 sales suggests growth of 1.1% from the year-ago reading. ZUMZ has a trailing four-quarter earnings surprise of 2,560.4%, on average.

Tapestry, the leading accessories designer, presently carries a Zacks Rank #2. TPR has a trailing four-quarter earnings surprise of 29%, on average. The stock has rallied 9.1% in the past year.

The Zacks Consensus Estimate for Tapestry’s fiscal 2022 sales and earnings per share (EPS) suggests growth of 14.8% and 17.9%, respectively, from the corresponding year-ago levels. TPR has an expected EPS growth rate of 12.3% for three-five years.

Costco, a general merchandise retailer, has a Zacks Rank #2 (Buy) at present. Shares of COST have surged 42.3% in the past year.

The Zacks Consensus Estimate for Costco’s fiscal 2022 sales and EPS suggests growth of 7.6% and 9.5%, respectively, from the year-ago corresponding figures. COST has a trailing four-quarter earnings surprise of 8.3%, on average.

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