Shares of Big Lots Inc. (BIG, Financial) took a dive in trading on Friday on the heels of the release of first-quarter earnings.
The giant discount retailer reported earnings per share of 95 cents on revenue of $1.27 billion. Analysts were looking for earnings of $1.15 per share on revenue of $1.28 billion. In net income, the company reported $31 million compared to $51 million in the prior-year quarter.
The results are an about-face after nine consecutive quarters of earnings beats. However, the decline in value also may signal an entry point for investors seeking out a well-run company that pays a good dividend at a bargain price. According to the Peter Lynch chart, Big Lots is trading below fair market value. The median is $65 a share.
Cold weather
On Friday, executives at Big Lots blamed the decline on a drop in comparable-store sales after weeks of unseasonably cold and wet weather and competition from aggressive mark-downs during President’s Day weekend.
Officials said in an earnings call on Friday that sales picked up in May as a result of warmer temperatures.The company is on its way to remodeling a number of its stores in order to create a “more pleasant shopping experience” for customers, it said Friday. It also has seen a surge in online sales.
All told, comparable-store sales fell 3% from a guidance of “flat to slightly down.” Analysts had predicted a drop of 0.9%.
For the year, Big Lots is anticipating a 1% increase in comparable-store sales.
Shareholder lawsuitÂ
The company also announced an $8.7 million after-tax expense, or 21 cents per share, as a result of the settlement of a shareholder lawsuit and the retirement of its chief executive officer, the company also said on Friday. If included in its first-quarter performance, earnings are reported at 73 cents per share on net income of $31 million.
The company has provided guidance for fiscal 2018 of adjusted income in the range of $4.50 to $4.70 per share, compared to fiscal 2017 income of $4.45 per share. All figures are non-GAAP. The FactSet consensus is for $4.87 per share.
Falling stock
Early Friday afternoon, the stock stood at $38.27 a share, down more than 6% after tumbling more than 9% in premarket trading.
The stock is at the bottom of its 52-week range of $36.51 to $64.42 a share. It has fallen 16% in three years and roughly 31% year to date.
By comparison, year to date, the SPDR S&P Retail exchange-traded fund (XRT) has gained 2.6% and the S&P 500 is up 1.2%.
A total of 36.52% of its float is shorted.
On Friday afternoon, the stock traded at 8.91 times earnings and 8.61 times forward earnings. Its forward price-earnings ratio is 91% higher than its competitors in the global discount store sector.
It has a price-book ratio of 2.38 times, which is more than 70% lower than its same-sector peers. It has a price-sales ratio of 0.31 times or more than 50% higher than its same-sector peers.
Shareholder dividends
The company stated in a Friday pre-market earnings call that it had returned $14 million to shareholders in the form of dividend payments in April. In an announcement today, the company said its board of directors had declared a quarterly cash dividend of 30 cents per share. The dividend payment of about $13 million is payable on June 29.
It has a 2.72% yield on its dividend, which is higher than 73% of its same-sector peers. The industry median is 1.93%.
Net income and revenues
Operations at Big Lots are strong as the company reported a Piotroski F-Score of 8, which indicates a very health situation.
The company has seen consistent growth in revenue per share over the years. It has averaged an annual growth in earnings per share of 9.10% over the last decade.
In January, it reported a preliminary figure in revenue of $5.27 billion, compared to $5.1 billion in the prior year. It reported an operating margin of 5.72%, compared to 4.77% in the prior year. It reported net income of $190 million, compared to $153 million a year ago. Also in January, it had free cash flow of $108 million and long-term debt of $200 million, compared to $106 million a year ago.
GuruFocus ranks the company 7 out of 10 in financial strength and 8 of 10 in profitability and growth. It has a market cap of $1.83 billion.
Guru shareholders
Gurus who hold the stock include Jim Simons (Trades, Portfolio), Richard Snow (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Chuck Royce (Trades, Portfolio), David Dreman (Trades, Portfolio) and Hotchkis & Wiley.
