Big Lots Q3 Loss Widens, Lowers Full-year Outlook; To Exit Canadian Operations

(RTTNews) - Broadline closeout retailer Big Lots Inc. (BIG) on Thursday reported a loss for the third quarter that widened from last year as an increase in sales and margins were more than offset by higher operating expenses. Results for the quarter missed analysts' expectations.

Looking ahead, the company provided earnings outlook for the fourth quarter below Street estimates and also lowered its earnings outlook for fiscal 2013.

Columbus, Ohio-based Big Lots also said it has decided to exit the unprofitable Canadian market, where it currently operate 73 stores under the Liquidation World or LW brand names, 5 stores under the Big Lots brand name, 2 distribution centers, and an office. The company plans to begin an orderly wind-down process immediately and expects that principal operations will cease during the first quarter of fiscal 2014. Shares of the company tumbled more than 10 percent in extended trades.

Big Lots' consolidated comparable-store sales for the third quarter declined 2.5 percent, compared to a decline of 4.6 percent in the same period last year.

Adjusted net sales from the U.S. operations for the quarter, excluding wholesale operations, increased 2 percent to $1.10 billion. Meanwhile, comparable store sales for U.S. stores open at least fifteen months decreased 2.5 percent for the quarter, compared to a 4.6 percent decline in the prior-year period.

Net sales from Canadian operations for the quarter declined 2 percent from the year-ago period to $38.3 million. Comparable store sales decreased 0.9 percent.

Big Lots' net loss for the third quarter widened to $9.52 million or $0.17 per share from $5.99 million or $0.10 per share in the same period last year. The latest quarter's results include an after tax gain on the sale of real estate of $2.2 million or $0.04 per share, and an after-tax loss for the company's wholesale operations of $2.6 million or $0.05 per share.

Adjusted loss from continuing operations for the quarter were $9.11 million or $0.16 per share, compared to adjusted loss from continuing operations of $6.18 million or $0.11 per share in the year-ago period. On average, 17 analysts polled by Thomson Reuters expected the company to report loss of $0.08 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter rose 2 percent to $1.15 billion from $1.13 billion in the year-ago period, but missed analysts' consensus revenue estimate of $1.16 billion.

Gross margin rose 40 basis points from the year-ago period to 38.5 percent.

Big Lots noted that the strategic decision to exit Canada will enable it to focus resources on introducing e-commerce and omnichannel capabilities, rolling out coolers and freezers to its chain of stores, launching a furniture financing program, significantly realigning the company's merchandising organization, and moving swiftly to implement its "edit to amplify" merchandising strategy.

Looking ahead to the fourth quarter, Big Lots forecasts consolidated adjusted earnings in a range of $0.65 to $0.90 per share. Analysts expect the company to earn $2.11 per share for the quarter.

The company projects adjusted income from continuing U.S. operations for the fourth quarter in a range of $1.40 to $1.55 per share, compared to adjusted income from continuing U.S. operations of $2.08 per share in the year-ago period.

This guidance assumes U.S. comparable store sales to decline in a range of low to mid single digits and total U.S. sales to decrease in a range of 6 percent to 8 percent.

For its Canadian operations, the company anticipates loss from Canadian operations for the fourth quarter in a range of $0.65 to $0.75 per share, including a charge in a range of $32 million to $34 million related to severance, lease liabilities, and asset impairment.

Big Lots recently announced its intention to close its wholesale operations in the fourth quarter of this fiscal year, at which time it will be treated as discontinued operations. The company also plans to cease operations of its stores in the first quarter of fiscal 2014.

For fiscal 2013, Big Lots lowered its outlook for consolidated adjusted earnings from continuing operations to a range of $1.42 to $1.65 per share from the prior range of $2.80 to $3.05 per share. Analysts currently expect the company to earn $2.94 per share for the year.

Big Lots also lowered its full-year outlook for adjusted income from continuing U.S. operations to a range of $2.40 to $2.55 per share from the prior range of $3.05 to $3.20 per share.

This guidance now assumes U.S. comparable store sales to decline 2 to 3 percent, and total U.S. sales to decrease in the range of 1 to 2 percent. Earlier, the company forecast comparable store sales for U.S. operations in the range of flat to -1 percent and net sales for U.S. operations in a range of flat to +1 percent.

The company now anticipates full-year loss from Canadian operations in a range of $0.90 to $0.98 per share, compared to its prior outlook for net loss in a range of $0.15 to $0.25 per share.

BIG closed Thursday's regular trading session at $37.13, down $0.03 or 0.08 percent on a volume of 1.57 million shares. In after-hours, the stock further declined $3.73 or 10.05 percent to $33.40.