Big Lots likely to post weak Q2 earnings

Big Lots (NYSE: BIG) is set to report its second-quarter earnings results on Friday before the market opens. The bottom line will be hurt by higher costs and expenses while the top line will be benefited by growth in comparable-store sales. The productivity of new and relocated stores will continue to outperform the productivity of its closed stores.

The company’s business will be impacted by risks associated with international trade, including the impact of tariffs recently imposed by the US with respect to certain consumer goods imported from China. The company relies on manufacturers located in foreign countries, including China, for merchandise, including domestically-purchased merchandise.

The quarterly sales and operating profits are expected to be impacted by the timing of new store openings and store closings, advertising, and certain holidays. The discount retail industry, which includes both traditional brick and mortar stores and online marketplaces, is highly competitive.

It is expected that the market share, gross margin, and operating margin could be reduced and results will be hurt by increased competition, significant discounting, improved performance by the company’s competitors, or an inability to distinguish Big Lots’ brand from its competitors.

Analysts expect the company’s earnings to plunge by 32.20% to $0.40 per share while revenue will rise by 2.10% to $1.25 billion for the second quarter. The company has surprised investors by beating analysts’ expectations twice in the past four quarters. Majority of the analysts recommended a “strong-buy” or “buy” rating with an average price target of $32.20.

Read: Ross Stores Q2 earnings review

For the first quarter, Big Lots reported a 50% dip in earnings due to charges related to the early implementation phases of its strategic business transformation review as well as certain legal settlement loss contingencies. Net sales increased by 2.2% with the increase resulting from positive comparable store sales and sales growth in high volume new stores, or non-comp stores.

For the second quarter, the company expects adjusted earnings in the range of $0.35 to $0.45 per share and comparable-store sales growth in the low single digits. For fiscal 2019, the company predicts adjusted earnings in the range of $3.70 to $3.85 per share and comparable-store sales growth in the low single digits. The company continues to expect to open about 50 stores and close about 45 stores during 2019.

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