Big Lots Inc. Earnings: Making More From Less

By Markets Fool.com

Closeout retailer Big Lots posted earnings results for the critical holiday shopping quarter on March 4. The company logged its eighth straight quarter of comparable-store sales growth but by a weaker margin than executives had forecast back in early December.

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Here's how the headline results stacked up against the prior year:

Q4 2015

Q4 2014

YoY Growth

Revenue

$1.58 billion

$1.59 billion

(1%)

Net Income

$94.5 million

$94.4 million

N/A

Earnings Per Share

$1.93

$1.79

8%

Source: Big Lots financial filings

What happened this quarter?
Overall, sales growth was slightly lower than expected, while earnings and profitability both came in strong, despite an intensely competitive selling environment. Here are the highlights of the quarter:

  • Comparable-store sales increased 0.7%, below management's target of 1% to 2% growth. While this marked the second consecutive year of positive comps following negative results in 2012 and 2013, this quarter was the third period in a row during which Big Lots' growth pace decelerated.
  • Gross margin ticked higher to 40.9% of sales from 40.8% a year ago, as management held the line on pricing.
  • As a result, operating profit improved to 9.8% of sales from 9.6%, and net income enjoyed a similar uptick to 6% of sales.
  • Big Lots ended the year with $54 million of cash and $62 million of debt, with neither figure changing materially from the prior year.
  • Inventory held steady at $850 million.

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What management had to say
Executives were happy with the holiday-season performance. "I'm pleased with our results and another strong year for the Company," CEO David Campisi said. Despite challenges including a major winter storm and a delayed start to tax refund season, "... fourth quarter earnings were at the high end of our guidance range and comps increased for an eighth consecutive quarter," he explained.

Source: Big Lots

"Throughout 2015, we remained focused on our strategy and the consistency of our performance and [our core customer] has responded positively," Campisi said.

Looking forward
Big Lots' 2016 outlook calls for a comps increase that's on par with the 2% uptick seen in 2015, and the company expects the steady growth to translate into strong adjusted income of as much as $3.35 per share, or 13% above last year's figure.

Investors can expect higher cash returns, too, since the company boosted its dividend by 11% and predicted it will spend close to $250 million on share repurchases throughout the year.

With the hectic holiday season behind it, management's focus now shifts toward finally rolling out an e-commerce sales platform aimed at establishing a presence in this must-win sales channel. After years of investing in its own e-commerce abilities, Target enjoyed a major sales boost from that segment over the holidays: Digital revenue contributed 1.3 percentage points of the company's overall 2.1% comps gain during the period.

Starting from scratch (initial plans call for just 15% of its products to be available at launch), Big Lots won't see anything like that level of contribution from a new e-commerce platform. But Target's recent success confirms that the retailer is right to prioritize these efforts -- hopefully in time for 2016's holiday season crush.

The article Big Lots Inc. Earnings: Making More From Less originally appeared on Fool.com.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Big Lots. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.