By James Anderson
Same-store sales at Big Lots continue to rise, by 2.6% in the latest quarter. This is the seventh consecutive period in which comparable numbers have increased, an indication that the strategic initiatives put in place by management are still paying dividends. Although helped by the solid underlying growth, the total sales uplift of 0.8% is somewhat more anemic, dragged down by a lower store count than last year as the company continues to rationalize its fleet by closing unprofitable shops.
This good news is balanced out by a more negative operating performance—Big Lots had a net loss of $1.52 million. Although this is fairly inconsequential in the scheme of things and does not change the fact that in the year to date Big Lots’ net income is up $28.5m (+144%) over the prior year, it is still disappointing not to see productivity gains at existing stores filtering through to the bottom line. That said, 2015 was always going to be a year of transition rather than a year of major advancement and, by that measure, Big Lots has largely delivered.
The main shift at Big Lots has been the move away from being a pure ‘closeout’ retailer to a more balanced operator that also sells discounted stock that is permanently available.
The main shift at Big Lots has been the move away from being a pure ‘closeout’ retailer to a more balanced operator that also sells discounted stock that is permanently available. This takes the company in the right strategic direction in terms of building up a regular customer following that translates into strong customer traffic levels in store. That said, Big Lots has pursued this strategy against the backdrop of an increasingly competitive marketplace into which dollar stores and other discounters have expanded aggressively. Indeed, in the context of the growth of players like Dollar General and Dollar Tree, Big Lots performance looks positively slim. Given this, Big Lots will need to work much harder at differentiating itself from the many other discount-led retailers.
One point of growth will likely come from a new transactional site, known internally as Big Lots Anytime Store, which is scheduled to go live in January or February 2016. Although it is not always an imperative for discount players to have an online presence, we maintain that this will be helpful to Big Lots due to the mix of products it sells. The company’s strong social media presence and its digital marketing efforts via its Buzz Club are likely to be helpful in driving traffic to its transactional site. The launch will also help pay back some of the investment costs that have acted as a drag on profits over the course of this fiscal year.
Generally the outlook for Big Lots is fair. Granted, this is a competitive market and progress by Big Lots has been relatively slow this year – but the company is moving in the right direction and has shown signs of improved financials. However, the company will need to step up the pace next year if it is to satisfy investors, and the market, that it remains on the right track.
James Anderson is a retail consultant at Conlumino