Earnings Check-Ups $BIG

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Big Lots reported a monster quarter. It’s been awhile since I wrote about it back in December, and the stock is up nicely, so I wanted to quickly review the quarter and talk about the thing I think is most important for Big Lots going forward.

Comps were +11.3% vs. consensus +6.7%, margins beat on both gross margins and operating margins… and EPS beat coming in at $2.62 vs. consensus at $1.72. Q2 guidance was also ahead of consensus.

So, not much to be upset about. Here are some other tidbits from the press release:

  • Furniture business, which I highlighted as a killer move (almost prescient coming into COVID), is “continuing its rapid progress toward becoming an established $1 billion brand”
    • Broyhill brand drove $225MM in sales alone this Q – not bad for an asset they paid $15.8MM for!
    • Seasonal category also comped +51%, driven by outdoor furniture
  • Food & consumables comped down hard, at -15%, but that’s expected as we lap the COVID stock-piling bump from last year
  • They now have 21 million rewards members, adding 2 million in Q1.
    • This goes back to my point when I wrote up BIG – the market is implying BIG will give back all of its gained customers, but at the time was saying software was going to retain all of its customers and not slow down in growth.
    • Is that really fair? Sure, retail isn’t that sticky, but all of the customers gone?
  • Next Q, they think Y/Y comps will be down low double-digits, but that’s +20% on a two-year stack
  • Share count is down 8% Y/Y as the Big Lots has been buying back stock
  • BIG now has $613MM in cash and $32MM in debt

So here’s what I still like about Big Lots: That cash opens significant optionality. If the reason why you didn’t own retail before is that they couldn’t keep up with Amazon, does this huge cash influx not help narrow the gap? Do you ignore that they are clearly pivoting the stores to be anchored by things like branded furniture, which historically customers want to touch and feel? Do you ignore that they are expanded same-day delivery or buy online, pick up in store?

On that note, management said on the call: “Our recent omnichannel initiatives to remove purchase and fulfillment friction such as buy online, pick up in store, curbside pickup, ship from store and same-day delivery with Instacart and pickup have been very successful and drove around 60% of our demand fulfillment.”

They have 27% of their market cap in cash, almost no debt, and as a reminder from my original post, a lot of store leases expirations coming up which can allow them to pivot locations if they wanted. 

As a reminder, BIG typically has $50MM of cash on hand, so they now have over 10x that amount…

With BIG trading around ~$65/share, you’re buying the company for 7.6x earnings, ex-cash. Not bad for one that actually earns a decent return on capital / equity.

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