Earnings Preview: What to look for when Big Lots publishes Q1 results

Market watchers are of the view that community retailer Big Lots (NYSE: BIG) entered 2019 on a relatively unimpressive note, and is estimated to have recorded a double-digit decline in first-quarter earnings amid high costs.

When the company publishes the results Friday before the opening bell, earnings are expected to drop 26% year-on-year to $0.70 per share, which falls within the management’s guidance range. Revenues are seen moving up 2.4% to $1.3 billion.

The weakness in the bottom-line performance points to the need for more effective measures to contain the high costs and save margins, though the three-year cost reduction plan rolled out by the company recently has started yielding results.

PROS & CONS

The ongoing uptick in the furniture and soft home segments bodes well for Big Lots, which together with positive seasonal sales have helped the company maintain stable revenue growth. Margins are likely to come under pressure from higher transportation and distribution costs in the April quarter, though the impact will be partially offset by the initiatives to cut payroll and indirect costs, supply chain expenses and selling costs.

Going forward, investors can look for a stronger customer base and improved store traffic if the store remodeling program, titled Store of the Future, goes as planned.

The weakness in bottom-line performance points to the need for more effective measures to contain the high costs and save margins

FOURTH QUARTER

In the fourth quarter, comparable store sales grew 3.1%, which was slightly slower than the 3.4% growth recorded in the third quarter. Net sales, meanwhile, dipped 2% to $1.59 billion and missed the estimates. Earnings rose to $2.68 per share and surpassed the estimates.

Among others, Costco Wholesale (COST) will be publishing third-quarter results Thursday after the market’s close. While Dollar General (DG) is scheduled to unveil first-quarter numbers Thursday early morning, Dollar Tree Stores (DLTR) will report after the closing bell.

The performance of Big Lots’ stock prior to the earnings report is not very encouraging, as it did ahead of the previous announcements. It lost 28% since the beginning of the month, continuing the downtrend that started in April. Currently, the shares are trading near the lows seen in December when they slipped to an eight-year low.

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