The Street Debates What To Do With Big Lots After Mixed Q4 Earnings

Retail chain Big Lots, Inc. BIG last week reported fourth-quarter earnings that missed expectations on top line, but beat on the bottom line. The Street isn't fully convinced the company can sustain its growth rates moving forward.

The Analysts

• Bank of America's Jason Haas maintains a Buy rating on Big Lots with a price target lifted from $40 to $45.
• Raymond James' Dan Wewer maintains at Outperform, price target lifted from $36 to $40.
• Tigress Financial Partners' Ivan Feinseth.

Shares traded around $36.13 Monday afternoon.

BofA: Incrementally Bullish After Strong Finish To 2018

After many quarters of showing flattish growth the company's comps have "meaningfully" picked up to above 3 percent for the past two quarters, Haas said in a research report. The company benefited from a combination of more low-income consumer spending and benefits from the store of the future (SOTF) remodel program.

New SOTF locations are showing a high single digit to low double digit comp lift in their first year. One of the first markets to get a liftover (Phoenix) showed a mid-single digit comp in the fourth quarter after showing a double-digit comp growth last year.

Haas said recently appointed CEO Bruce Thorn continues to develop a new game plan so the company hasn't released any new three year targets aside from $100 million in cost savings through 2021. Management is likely to continue focusing on home furnishing categories, which are performing well and new details could be presented at an industry conference this week.

Related Link: Analysts Lower Big Lots Price Targets After Q3 Print

Raymond James: Bullish Theme Reinforced

Big Lots' management detailed multiple initiatives that are likely to result in strong store productivity and central to a bullish stance on the stock, Wewer said in a research report. These include:

• Expansion in the consumable category;
• The acquisition of furniture brand Broyhill will improve product quality;
• Potential to introduce new categories, marketing strategies or store layouts to better focus on events/occasion;
• New stores and relocations;
• Buy online and pick up in store options across one thousand items; and
• $100 million in expense savings by 2021 with $40 million targeted in fiscal 2019.

Wewer said the company faces low expectations so a modest improvement at the very least in top-line trends will "spark a rally" in the stock.

Tigress: Sell On Strength

Shares of Big Lots gained about 14 percent Friday and this should be seen as a selling opportunity for investors, Feinseth said in his daily newsletter. The company showed in the quarter strategic investments are working but margins contracted due to strong competition from rival extreme value retailers.

The company also faces a problem in which a strong economy enables customers to go upmarket, the analyst wrote. As such there is "little opportunity for any positive gains" and investors should "continue to avoid the stock."

Photo credit: Mike Kalasnik from Fort Mill via Wikimedia Commons