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Big Lots Tested by the Depth of the U.S. Slowdown

By    |   Tuesday, 12 Jun 2012 02:32 PM

Big Lots (BIG) would seem to be a retailer built for a long-haul recession, buying mostly discontinued merchandise and discounting it heavily to its customers. But even that model has been tested by the depth of the U.S. slowdown.

Big Lots is North America's largest broadline closeout retailer, operating 1,533 stores in the United States and Canada.

In the U.S. segment, the company evaluates and reports overall sales and merchandise performance based on the following categories: Consumables, Furniture, Home, Seasonal, Play n' Wear, and Hardlines & Other.

The Consumables category includes the food, health and beauty, plastics, paper, chemical, and pet departments. The Furniture category includes the upholstery, mattresses, ready-to-assemble, and case goods departments. The Home category includes the domestics, stationery, and home decorative departments.

The Seasonal category includes the lawn & garden, Christmas, summer, and other holiday departments. The Play n' Wear category includes the electronics, toys, jewelry, infant accessories, and apparel departments.

The Hardlines & Other category includes the appliances, tools, paint, and home maintenance departments, as well as the results of certain large closeout deals that the company typically acquires through alternate product sourcing operations.

“Closeout merchandise generally results from production overruns, packaging changes, discontinued products, liquidations, returns, and other disruptions in the supply chain of manufacturers,” Big Lots management said in a recent filing.

“As a result, we can generally purchase closeout merchandise at lower costs than would be paid by traditional discount retailers, and offer closeout merchandise at lower prices than those offered by traditional discount retailers.”

Big Lots has a market cap of $2.41 billion in a sector, multiline retail, where the average company size is $2.09 billion. Its trailing 12-month P/E ratio is 12.87 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.04, compared to 1.08 for the sector.

Its projected earnings per share growth for the coming year is 12.16 percent, compared to a sector average of 14.46 percent.

Sluggish recovery


Analysts are noncommittal on BIG going forward. Most of Wall Street is neutral on the stock, although none have negative views. There are buy or outperform calls in from Columbine Capital Services, Ned Davis Research, and BB&T Corp.

“The closeout format gives the company an edge over traditional discount retailers as customers are offered merchandise assortments at very low prices. From a merchandise perspective, Furniture and Hardlines performed well but Consumables and Electronics portrays sluggish performance,” said the analysts at Zacks Investment Research in a note dated June 5.

“Given the sluggish economic recovery, the company intends to focus on Consumables category. Currently, we maintain our neutral recommendation on the stock.”

Big Lots next reports on Aug. 23.

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Tuesday, 12 Jun 2012 02:32 PM
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