Big Lots Soars on Earnings, Canadian Shutdown

Big Lots Inc. (NYSE: BIG) reported fourth-quarter and full-year 2013 results before markets opened Friday. For the quarter the discount retailer reported adjusted diluted earnings per share (EPS) of $1.45 and $1.57 billion in revenues. In the same period a year ago, Big Lots reported EPS of $2.08 on revenue of $1.7 billion. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $1.40 and $1.61 billion in revenue.

For the full year, the company posted EPS of $2.45 on revenues of $5.3 billion, compared with EPS of $3.21 on revenues of $5.37 billion in 2012. Consensus estimates called for EPS of $2.40 on revenues of $5.29 billion.

The big news from Big Lots is that it plans to shut down its Canadian operations, where it now claims 73 Liquidation World stores, 5 Big Lots stores, two distribution centers and an office. The company expects operations to cease during the first quarter of 2014.

The company’s announcement offers an explanation of its decision to close its Canadian stores:

[W]e have not been able to gain the necessary traction in the Canadian marketplace that had originally been anticipated and believe that the significant further capital investments and execution risk associated with continuing to pursue a turnaround would not be in the best interests of our company and shareholders. … The strategic decision to exit Canada will enable us to focus our resources on introducing e-commerce and omnichannel capabilities, rolling out coolers and freezers to our chain of stores, launching a furniture financing program, significantly realigning our merchandising organization, and moving swiftly to implement our “edit to amplify” merchandising strategy. These bold steps forward all possess the singularly focused goal of strengthening the Big Lots brand and reinvigorating our U.S. business.

Same-store sales in the United States fell 3% in the fourth quarter, compared with sales in the comparable period last year.

Big Lots announced at the end of its third quarter that it would shut down its Canadian stores and expected a hit to quarterly earnings of $0.65 to $0.75 a share. The actual loss was $0.47 a share, which the company attributes to higher sell-through of merchandise at better margins, lower operating expenses and the timing of recognition of lease liability charges and certain asset write-downs.

The company’s 2014 adjusted EPS guidance is pegged at $2.25 to $2.45, with same-store sales estimated to be flat to up 2%. Big Lots said it would open 30 new stores in the United States and close 50 during the year, generating positive cash flow of $165 million.

For the first quarter of 2014, Big Lots estimates adjusted EPS of $0.40 to $0.45, short of the $0.50 consensus estimate. Same-store sales are forecast to be in a range of “slightly positive to slightly negative.” The company estimates its first-quarter loss related to the closing of its Canadian stores in the range of $0.64 to $0.71 per share.

The EPS beat and the lower costs associated with the closing of its Canadian stores has the stock making a big positive move in Friday’s premarket trading. Shares were up about 16%, at $33.95 in a 52-week range of $25.50 to $39.22. Thomson Reuters had a consensus analyst price target of around $34.10 before the results were announced.