Big Lots Inc.

Big Lots, Inc. is growing operating profits and generating ample cash flow despite a difficult retailing environment. It's recently reported fourth quarter produced a nice earnings surprise. Over the past four quarters, it has posted an average surprise of 39.7%.

Full Analysis

Big Lots, Inc. (BIG), through its subsidiaries, operates as a broadline closeout retailer in the United States. The company offers its products under four merchandising categories: consumables, home, seasonal and toys, and other.

The consumables category includes food, health and beauty, plastics, paper, and pet departments. The home category includes domestics and home decor departments. Seasonal and toys category includes toys, lawn and garden, trim-a-tree, and various holiday-oriented departments. The other category primarily includes electronics, apparel, home maintenance, small appliances, and tools.

The shares rose a few weeks ago as an analyst said the closeout retailer is poised for growth and initiated coverage with a 'Buy' rating. Soleil Securities Group analyst Jeffery Stein said in a note to investors that Big Lots, which specializes in buying closeout items from other retailers and selling them at a discount, has streamlined its business model to grow earnings even in a weak consumer spending environment.

In early March, the company reported fourth quarter net income of $92.0 million, or $1.04 per diluted share, for the 13 week fourth quarter of fiscal 2007. This compares to net income of $104.3 million, or $0.94 per diluted share for the 14 week fourth quarter of fiscal 2006. For the 52 week fiscal 2007 ended February 2, 2008, net income was $158.5 million, or $1.55 per diluted share, compared to net income of $124.0 million, or $1.11 per diluted share, for the 53 week fiscal 2006. Analysts expected $0.83 per share.

BIG estimated fiscal 2008 income from continuing operations will be in the range of $1.70 to $1.80 per diluted share compared to income from continuing operations (on a non-GAAP basis) of $1.41 per diluted share for fiscal 2007. This guidance for EPS growth in the range of 21% to 28% compared to last year is based on an expected increase in comparable store sales of approximately 1% to 2% and continued expense leverage.

Commenting on fiscal year 2007 results, Steve Fishman, Chairman and Chief Executive Officer stated, 'Our continued focus on our WIN strategy enabled us to drive record EPS performance at Big Lots in 2007. We expanded our operating profit rate, turned our inventory faster, and generated nearly $250 million of cash flow in what most people have described as a very difficult economic environment.'

The company has an awesome history of beating estimates. Over the past four quarters, it has posted an average surprise of 39.7%. During that time, current year earnings estimates have risen 18 cents to $1.78 per share. Analysts expect a further increase of 11% in earnings growth next year.

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