are rejoicing today after discount retailer Big Lots (BIG
38.39, -2.52, -6.2%) missed on first quarter earnings, sales, and guided second
quarter and fiscal 2018 earnings below market expectations.
You’d be hard pressed to find a bit of optimism when first glancing at the report. Slimmer than expected first quarter earnings of $0.95 and a 2.1% dip in revenues to $1.27 bln failed to meet Street views.
What’s more, worse than expected first quarter comparable store sales of -3% were juxtaposed against a 1.6% increase in inventories in the quarter to $849.63 mln. Also, Big Lots’ first quarter gross margins of 40.4% narrowly missed market expectations, primarily the result of a slightly higher markdown rate and the sales missed in the company’s seasonal category, which is an inherently higher margin business.
As management discussed on its last call in March, February was difficult mostly due to furniture softness and intense competition during the Presidents' Day promotional period. While company sales trends did improve from February to March to April, the rate of improvement was dampened by cool, wet weather, and it was not enough to make up the slow start to the quarter.
Management noted that when transactions are down in the ownable category of seasonal lawn and garden and summer, there is an unfavorable halo effect on other categories in the store. Sales trends in May, however, have improved as warmer weather has moved in across the country.
The company, too, tempered fiscal 2018 earnings guidance to a range of $4.50-4.75 from the previous $4.75-4.95 outlook. Also, Big Lots now sees fiscal 2018 comparable store sales increasing approximately 1% from the previous expectation of a low single digit increase. Management also slightly lowered its 2018 cash flow guidance to $110-120 mln, down from approximately $120-130 mln previously.
Second quarter guidance also wasn’t much to write home about as Big Lots forecast worse than expected earnings of $0.60-0.70 per share on flat to up 2% comps. Management also sees gross margins down slightly from last year and expenses as a percentage of sales to be higher than a year ago.
The company’s woes follow discount peers Dollar Tree (DLTR 82.35, -0.24, -0.3%) and Dollar General’s (DG 87.96, +0.48, +0.6%) similar struggles from their quarterly reports yesterday morning.
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