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A Few Reasons Why Investors Should Wait Before Investing in Big Lots

June 23, 2014 | About:

There are a variety of eye-catching discount retail stores such as Big Lots (NYSE:BIG), Family Dollar and Dollar General (NYSE:DG) that are delivering impressive performance amid a tight economic environment. Let us see if they are good bets for investors.

A look at Big Lots

Big Lots posted impressive revenue in its recently declared quarter, yet it has lagged peers like Dollar General and Family Dollar. Still, its strategic investments in opening new stores look positive.

However, Big Lots has witnessed a comparatively weak performance in its comp stores that are turning out to be a big concern for investors and shareholders. The company has failed to connect with its customers and is resorting to capital intensive means of driving top line growth.

Its comps have been declining continuously. It slumped 0.1% in 2011 from a 2.5% growth in 2010. Also, comps turned out to be even worse in 2012, dwindling further by 2.7% versus the prior year. The trend continued in the third quarter as well. And it is no surprise that the CEO had to say “I'm not happy with our results.”

Big Lots also reported 2.5% and 0.9% fall in its comparable store sales in the U.S. and Canada, respectively as against the corresponding period last year. Its consolidated comps declined 2.5% versus the year-ago quarter.

On the top of it, Big Lots offered a very conservative outlook for the rest of the year. It expects revenue to go down in the range of 6% to 8%, while comps are expected to decline in the low to mid single-digit range. This was enough to spook investors. As a result, the stock has taken a terrible beating on the Street since then, losing almost 33% from its peak.

However, Big Lots' continuous focus on areas such as e-commerce and omni-channel capabilities should drive its earnings and long-term growth. Also, it has decided to exit from the non-profitable Canadian market, which will increase its chances for a profitable future.

But, it has to compete with bigger industry players like Target, Wal-Mart, and Dollar General. Yet, the company is in a turnaround phase with a lot of growth initiatives that should help it to display some good results in the coming years.

Peer comparison

Dollar General, on the other hand, has been ringing in some impressive numbers. It reported a strong growth of 4.4% in its comps in the previous quarter. Also, the company was pleased to notice that every week during the quarter had positive comps growth. Meanwhile, Big Lots was suffering a comps decline across all its markets.

In addition, Dollar General was encouraged to see that both traffic and average ticket increased for 23 consecutive quarters. This indicates that the company is connecting well with its consumers.

Dollar General reported net sales of $4.4 billion, an increase of 10.5%, on the back of strong traffic-fueled comps growth and additional 577 new stores that were opened.

Besides, Dollar General’s market share in the consumables segment has increased in the four-, 12-, 24- and 52-week periods as per Nielsen data for October. This is important because the consumables category accounts for about 75% of total revenue. Going forward, Dollar General is confident of achieving a 10% to 10.5% revenue growth versus the previous fiscal on the back of 4% to 4.5% year-over-year comps growth.


It looks like Dollar General is in the best position due to its comps growth and aggressive expansion. The company is gaining market share in the important consumables category and looks set for further growth. Big Lots could prove to be a good investment as well, but investors should wait for the company to return to positive comps growth.

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GuruFocus has detected 4 Warning Signs with Big Lots Inc $BIG.
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