Big Lots, Inc. (NYSE:BIG)

CAPS Rating: 3 out of 5

The Company manages its business on the basis of one segment: broadline closeout retailing. Its wholesale operations are conducted through Big Lots Wholesale, Consolidated International, and Wisconsin Toy, with online sales.

Results 1 - 20 of 63 : 1 2 3 4 Next »

Recs

3
Member Avatar XMFConnor (97.23) Submitted: 10/20/2013 7:48:55 PM : Underperform Start Price: $36.67 BIG Score: -18.57

Investment Thesis
I recommend SELLING Big Lots (BIG) and have a price target of $28.51 (22% downside) because:

1)   Big Lots (BIG) is a mediocre business characterized by strong defensive characteristics, but weak growth opportunities.
2)   New Management’s initiatives are well-placed, but unlikely to meaningfully change results. New CEO David Campisi is trying to refocus the company on serving its core customer by using customer research, but it is unlikely this basic strategy will be able to dramatically improve operations.
3)   Long-term retail trends do not favor 30,000 square-foot big box retailers like BIG. BIG will most likely remain a niche retailer with mediocre returns on invested capital. As more spending shifts online, BIG will likely have declining long-term demand.
I believe shares are worth ~$28.51, 22% below the current price based on my base case DCF, which assumes normalized margins and GDP-like growth.

Business Overview

Big Lots is North America’s largest broadline closeout retailer, operating 1,574 stores. Approximately 1/3 of the total stores are located in the states of California, Texas, Ohio, and Florida. Through relationships with vendors and strategically located distribution warehouses, Big Lots is able to offer brand name merchandise at meaningful discounts to typical retailers' prices.
BIG’s business model depends on procuring excess goods within the supply chain, which then allows them to sell brand name merchandise at large discounts to its customers. The company lists 3 strategic advantages it has over competitors at obtaining merchandise, which include: 1) manufacturers and vendors having closeout merchandise from retailers canceling orders, going out of business, etc.; 2) working with vendors to develop products; and 3) private or capital label products, which are consistently available.
The company operates in six segments: furniture, home, seasonal, electronics & other, and hardlines & toys. It purchases merchandise from a broad vendor base of more than 3,000 domestic and foreign vendors. In 2012, their top ten vendors accounted for approximately 18% of total purchases (at cost) while the largest vendor accounted for approximately 6% of total purchases (at cost).

SWOT Analysis

Strengths: The business is highly defensive. During the recent recession, when most retailers were experiencing double digit sales declines, BIG’s worst yearly revenue decline was 2% in CY 2008.
Weaknesses: BIG has a mediocre 20% pre-tax ROIC since 2004 (~12% after-tax). Even though Big Lots is the biggest closeout retailer and has sourcing and cost advantages, it is still operating in the brutally competitive retail industry. Futhermore, BIG has a somewhat unpredictable source of merchandise, since it is trying to opportunistically buy closeout items. Combine this difficult sourcing with extremely price-sensitive consumers, and you have a recipe for consistently low margins.

Since 1992, the company’s average EBIT margin has been just slightly over 5%:
   Average   25th %   50%    75%   100%
EBIT Margin %    5.3%    4.2%   5.7%   7.1%   8.6%

Opportunities: The company’s new CEO, David Campisi, aims to refocus the company on understanding and serving its core customers’ needs. He is trying to “edit to amplify,” meaning exiting merchandise categories where it has no competitive advantage and adding more popular products with consumers.
Furthermore, the company’s consistency enables it to service a large amount of debt on the balance sheet. The company has only recently taken on a net debt position, but net debt is still only 20% of EBITDA. The company could raise more debt to buy back shares while also lowering its cost of capital. BIG is also a prime LBO candidate and has repeatedly been the subject of takeover rumors.
Threats: The company is subject to online competition, which can compete on price even with closeout items. As more purchases are made online, BIG could see its market and value proposition shrink.
Valuation
1)   Comparables
Company Name   Ticker   Market Cap   Enterprise Value   EV/Sales   EV/EBITDA   P/E   ttm rev growth (%)   EBITDA margins (%)   2004-2012 pre-tax ROIC
                                   
Dollar Tree, Inc.   DLTR   13,171   13,027   1.7   11.3   20.9   10.3   14.9   32%
Dollar General Corporation   DG   18,565   21,271   1.3   10.5   19.1   7.5   12.0   35%
Family Dollar Stores Inc.   FDO   7,982   8,354   0.8   9.1   18.1   11.4   8.9   29%
Wal-Mart Stores Inc.   WMT   246,112   299,827   0.6   8.2   14.7   2.7   7.7   26%
The TJX Companies, Inc.   TJX   41,283   40,468   1.5   10.7   21.2   10.4   14.1   44%
Ross Stores Inc.   ROST   16,004   15,604   1.5   10.0   19.2   10.6   15.4   43%
                                  
   Average   57,186   66,425   1.2   10.0   18.9   8.8   12.2   35%
   Median   17,285   18,437   1.4   10.3   19.1   10.3   13.1   33%
                                   
Big Lots Inc.   BIG   2,112   2,190   0.4   5.6   12.8   2.0   7.2   20%

While Big Lots is trading at lower multiples than its discount retail peers, this seems to be deserved due to its lower growth and return profile.

2)   DCF: I constructed a five-year DCF with bull, base, and bear scenarios. The key assumptions and outputs are listed below:
Assumptions   Bear   Base   Bull
         
Store Openings per year   50   55   60
Store Closings per year   35   35   35
         
Revenue/Sq ft growth   -2.0%   2.0%   4.0%
         
Gross Margin %   38.0%   39.0%   41.0%
SG&A Margin %   34.0%   33.5%   33.0%
Implied EBIT Margin   4.0%   5.5%   8.0%
         
Discount Rate   11%   11%   11%
Terminal EBITDA Multiple   5.7   6.5   7.5
         
PV UFCF   $119.43   $394.62   $790.27
PV Terminal Value   $670.96   $1,345.29   $2,525.20
Firm Value   $790.39   $1,739.91   $3,315.47
         
Net Debt   $77.89    $77.89    $77.89
Equity Value   $712.50   $1,662.02   $3,237.58
         
Value/Share   $12.22   $28.51   $55.54
Premium/Discount   -67%   -22%   51%

Conclusion
Big Lots is a very mediocre business. While they have some advantages associated with being the largest closeout retailer, they still compete in a very competitive retail market. This is evidenced by their average ROIC and low margins. While there is an opportunity for new management to refocus the company on the core customer, optimize the capital structure, and drive value much higher than the current market valuation, this is a lot to ask for from a business that only has 2% more stores than they did in 2005 and faces many long-term headwinds. I believe my base case DCF reflects t

Recs

0
Member Avatar Pattypoo212 (92.46) Submitted: 10/18/2013 2:47:11 PM : Outperform Start Price: $32.47 BIG Score: +26.92

My wife loves it, tough thing to do... get her to like anything. ::thumbs up::

Recs

0
Member Avatar mopoff (< 20) Submitted: 1/9/2013 3:25:27 PM : Outperform Start Price: $27.54 BIG Score: +40.70

HG

Recs

0
Member Avatar Matthewuwf (32.88) Submitted: 11/20/2012 10:37:47 AM : Outperform Start Price: $27.46 BIG Score: +34.44

Good value play, oversold

Recs

0
Member Avatar EmotionalTrader (29.05) Submitted: 6/19/2012 7:45:48 PM : Underperform Start Price: $38.97 BIG Score: +23.35

I'm still not sure what a Big Lots is.

Recs

0
Member Avatar withoutlimits (82.88) Submitted: 12/3/2011 2:05:17 AM : Underperform Start Price: $36.68 BIG Score: +25.93

BIG will lose value

Recs

0
Member Avatar pdoli (31.89) Submitted: 4/12/2011 5:05:34 PM : Outperform Start Price: $42.99 BIG Score: -39.59

http://on.ft.com/edHR5C

Recs

0
Member Avatar showmedamani (64.87) Submitted: 11/4/2010 3:07:36 PM : Outperform Start Price: $28.94 BIG Score: +4.12

With a weak economy and high unemployment.. It is a discount retailer like BIG that will perform...

I recommend entering in at around $24...

Recs

0
Member Avatar G311 (< 20) Submitted: 9/24/2010 2:27:45 PM : Outperform Start Price: $34.03 BIG Score: -32.43

HarryCaraysGhost's green thumb cinched it

Recs

0
Member Avatar gimponthego (< 20) Submitted: 7/26/2010 3:25:55 PM : Outperform Start Price: $35.81 BIG Score: -45.30

Saw need for essentials rather than discretionary waay before the others.

Recs

0
Member Avatar Maribaza (95.04) Submitted: 6/29/2010 3:28:00 PM : Outperform Start Price: $31.26 BIG Score: -23.57

(69,76,83)

RP-78,73,37

Screener
Current Parameters
Return on Equity (TTM)
15.00 - 6849.00
52 Week Price Change %
25.00 - 7900.00
EPS Growth Rate (last 3 Yrs)
0.00 - 564.69
4 Week Price Change %
-97.10 - 0.00
CAPS Rating
All on 2010-06-28
Price-to-Sales (TTM)
-40457.14 - 1.50

Recs

1
Member Avatar rgtoml (< 20) Submitted: 12/28/2009 9:29:25 AM : Outperform Start Price: $28.72 BIG Score: -8.93

Market growth

Recs

0
Member Avatar AFISHINFOOL2 (39.12) Submitted: 10/8/2009 11:45:57 AM : Outperform Start Price: $26.46 BIG Score: -3.32

Downside economy going into holidaty means shoppers hunting for stores that can provide more bang for the buck, Biglots fills that bill well. Decorations for all four holidays at well below other stores prices alone should provide increases in revs. and profits, gifting also will be less costly for shoppers in this retailer's stores.

Recs

0
Member Avatar MRSTARBUCKS (98.97) Submitted: 9/1/2009 7:46:55 PM : Outperform Start Price: $24.65 BIG Score: -4.27

a good disount store

Recs

0
Member Avatar COOLSTOCK (71.64) Submitted: 8/29/2009 8:32:38 PM : Outperform Start Price: $25.35 BIG Score: -4.64

A GOOD DISCOUNT STORE

Recs

0
Member Avatar ELPisthebest (86.41) Submitted: 3/6/2009 3:46:06 PM : Outperform Start Price: $17.38 BIG Score: -17.86

The not so Notorious B.I.G.

Recs

0
Member Avatar RubberSoul61 (93.54) Submitted: 1/8/2009 12:21:20 PM : Outperform Start Price: $14.62 BIG Score: +110.34

Should do well when other stores fail. For example, they just got a bunch of stock from the Circuit City's that went under.

Recs

0
Member Avatar IAMNERD (56.14) Submitted: 11/21/2008 6:11:58 PM : Outperform Start Price: $13.68 BIG Score: +102.76

With the holiday season coming up and money being tight, Big Lots should clean up with great deals and tons of products. Should be a very good season for them, and any store like them, and i would not be suprised if they set some sales records.

Recs

0
Member Avatar msidemrader (58.67) Submitted: 11/7/2008 9:09:22 AM : Outperform Start Price: $17.70 BIG Score: +52.53

Big lots is a discount retailer, and that is the only kind of retailer that is going to thrive in this market.

Recs

0
Member Avatar jdandpch (< 20) Submitted: 8/20/2008 5:52:59 PM : Outperform Start Price: $31.76 BIG Score: -10.03

I believe this stock will earn appx 40 cents this quarter (+/- 5 cents) versus the 27 cents estimated. I believe Soleil and S&P are wrong in their opinions. It has "beat the estimates" for at least the past seven quarters and I think they are positioned to do it again this quarter (earnings 082608) based on current economic conditions and forsee economics driving more sales as folks become more aware of them. They are the leader in the group with very little competition. They have a 90+ relative strength.

PLEASE NOTE: THIS IS MY OPINION ONLY! I HAVE PUT MY MONEY WHERE MY MOUTH IS! DO YOUR OWN RESEARCH!!!

Results 1 - 20 of 63 : 1 2 3 4 Next »

Featured Broker Partners


Advertisement