Big Lots Shares Spike On Strong Earnings, Outlook

CNBC.com

Big Lots

Closeout retailer Big Lots reported stronger-than-expected fourth-quarter results and forecast first-quarter earnings above Wall Street targets, sending shares of the retailer sharply higher Friday.

Big Lots, which is in the midst of a turnaround plan that has involved closing stores and revamping its merchandise, also approved the repurchase of up to $600 million of common shares, and said it expects to deliver annual compounded earnings per share growth of 20%through its fiscal year that ends in early 2010.

The results prompted KeyBanc to raise its rating on Big Lots shares to "buy" from "hold," citing the potential for the company to exceed expectations over the next several years.

"BIG's transformation has been dramatic over the past 12 months, far surpassing our expectations," wrote KeyBanc analyst Jeffrey Stein in a note.

"Despite operating in a highly populated and competitive space, we believe BIG has been able to distinguish itself by improving execution, cutting costs and providing a more compelling value proposition to the consumer."

Earnings Rise

For the latest fourth quarter ended Feb. 3, the retailer reported net income of $104.3 million, or 94 cents a share, up from $14.7 million, or 13 cents a share, a year ago.

Income from continuing operations was $91.6 million, or 83 cents a share for the quarter, up from $37.7 million, or 33 cents a share, a year ago.

Sales rose 10.8% to $1.55 billion from $1.39 billion a year ago.

Analysts on average had expected the company to earn 70 cents a share, before exceptional items, on revenue of $1.53 billion, according to Reuters Estimates.

Big Lots acknowledged last year that it had strayed too far from its closeout roots, and needed to stock more unique or interesting merchandise in its stores. It has been focusing on getting existing customers to buy more in its stores, a strategy it calls "raise the ring," which has helped boost results.

On a conference call, Big Lots Chairman Steve Fishman said that while it was "still very early in the game" he believed the strategy was working.

During the quarter, which included the all-important holiday shopping season, executives said some of its strongest performing categories were furniture and electronics, and its seasonal merchandise also sold well.

Its comparable store sales for stores open at least two years at the beginning of the fiscal year increased 4.9% for the quarter.

For the first quarter, Big Lots forecast earnings of 18 cents to 22 cents a share, while analysts expect it to earn 16 cents a share, before exceptional items.

For its fiscal year ending in early 2010, the company said it expects earnings per share of approximately $1.75.