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Big Logs Inc. investors were enjoying the best day in over 30 years Friday, after the discount retailer’s third-quarter report and an upbeat outlook suggested results may have bottomed out.
The stock BIG, +29.93% shot up 30% in very active afternoon trading, after closing the previous session at the lowest price since March 2009. The gain would be the biggest since the record one-day rally of 47.8% on Oct. 29, 1987.
Trading volume ballooned to 17.4 million shares, compared with the full-day average of about 1.2 million shares, and already above the previous one-day volume record of 17.2 million shares on Feb. 13, 2013.
Chief Executive Bruce Thorn helped fuel enthusiasm by suggesting the worst was behind the company, as the “Operation North Star” business transformation strategy is working.
“After a year of transition and restructuring in 2019, we expect 2020 to deliver a significant improvement in comps and return to earnings growth as the fruits of our transformational efforts begin to be realized.”
The company reported before the open that it swung to net income of $127.0 million, or $3.25 cents a share, for the quarter to Nov. 2, from a loss of $6.6 million, or 16 cents a share, in the year-earlier period, primarily as a result of a gain $136.6 million gain from the sale of a distribution center.
Excluding non-recurring items, the adjusted loss per share widened to 18 cents from 16 cents, but beat the FactSet consensus for per-share loss of 20 cents.
Net sales rose 1.6% to $1.17 billion, above the FactSet consensus of $1.16 billion, while the comparable-store sales decline of 0.1% missed expectations of a 0.1% increase.
The company affirmed its full-year adjusted EPS guidance range of $3.70 to $3.85, which is down from $4.04 a year ago, and surrounds the FactSet consensus of $3.80.
Thorn, who has now been CEO for a little over a year, said on the post-earnings conference call with analysts that he was “pleased to report” that despite the adverse effects of a shorter holiday shopping period, sales were off to a “solid” start in the fourth quarter, with same-store sales on track to be positive. Read more about the shorter holiday shopping season.
“Sales in the month of November, which included Thanksgiving and Black Friday, were ahead of plan and we are excited by the response from customers to our holiday assortment,” Thorn said on the call, according to a FactSet transcript. “After a year of transition and restructuring in 2019, we expect 2020 to deliver a significant improvement in comps and return to earnings growth as the fruits of our transformational efforts begin to be realized.”
The FactSet consensus for fourth-quarter same-store sales is a 0.2% increase, while the consensus for fiscal 2020 EPS of $3.84 is above the current 2019 EPS consensus.
Chief Financial Officer Jonathan Ramsden followed by saying that with inventory on hand at the end of the fourth quarter is expected to be down slightly from last year, reflecting a “favorable inventory-to-sales trend” coming into 2020. And while 2019 capital expenditures are expected to be “close to or somewhat lower” than last year’s $374 million, the company is planning for a “significant reduction” in 2020 to below $250 million, which implies a big boost to free cash flow.
Big Lots shares have gained 9.2% over the past three months but were still down 14.1% year to date. In comparison, the SPDR S&P Retail exchange-traded fund XRT, +2.24% has rallied 9.3% this year and the S&P 500 index SPX, +1.01% has run up 25.7%.
CEO Thorn concluded the call by saying in the face of a “highly competitive and evolving retail environment, the trade war and the impact of tariffs,” he is “confident” that the company’s transformation strategies will pay off.
“I’m also confident that 2020 will be a year of significantly improved performance for the company as the fruits of all these efforts start to be realized,” Thorn said.
