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Big Lots: Strong Retailer for Weak Economy

By    |   Thursday, 15 Dec 2011 10:43 PM

Big Lots (BIG), the largest broad-line closeout retailer in North America, represents a strong investment option in a weak economy. That’s because it offers prices 20 percent to 40 percent below those of discount stores for a broad range of items, including furniture, housewares, toys, and gifts.

Cash-strapped consumers appreciate those prices at a time of widespread worry over job security. In July, Big Lots bought Canada’s Liquidation World for $36 million, its first foray beyond U.S. borders. The company now has 1,445 Big Lots stores in the continental United States and 85 stores in Canada.

The long-term outlook is strong for the company, given consumers’ strong desire for bargains. So it’s no surprise that Big Lots recently increased its earnings estimates for the next year.

But its prospects are uncertain for the holidays, as it’s unclear how much shopping beleaguered consumers will do at any price.

"The question we don't know the answer to is which trend will carry forward throughout the Christmas season — the more cautious consumer of early November, or will the robust traffic pattern of Thanksgiving weekend dominate in December?" Big Lots CEO Steven Fishman said in a conference call after the company’s most recent earnings report.

Profit tumbled 76 percent from a year earlier in the quarter ended Oct. 29, to $4.19 million. Revenue gained 1 percent to $1.14 billion.

Favorable trend

Standard & Poor’s analyst Joseph Agnese has a neutral rating on Big Lots shares. The company’s most recent earnings came in far below his estimates, thanks to markdowns and promotional pricing.

Still, he writes, “we see a favorable sales trend, coupled with improving inventory levels and operating leverage benefits, helping to support margins going forward.”

That led Agnese to raise his estimate of 2012 earnings per share by 2 cents to $2.92. Agnese also boosted his 12-month target for the share price by $6 to $41. That level represents a 9 percent increase from recent levels.

The company next reports earnings March 2.

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Big Lots (BIG), the largest broad-line closeout retailer in North America, represents a strong investment option in a weak economy. That s because it offers prices 20 percent to 40 percent below those of discount stores for a broad range of items, including furniture,...
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Thursday, 15 Dec 2011 10:43 PM
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