Big Lots Sees Better Times Ahead

08/13/2015 8:00 am EST

Focus: STOCKS

Taesik Yoon

Editor, Forbes Investor and Forbes Special Situation Survey

Our latest recommendation is a unique, non-traditional retailer; its offerings generally consist of deeply discounted closeout merchandise purchased from manufacturers looking to unload inventory, explains Taesik Yoon, editor of Forbes Investor.

Big Lots, Inc. (BIG) also sells a variety of consistently stocked everyday products designed to encourage repeat visits to its stores.

After several years of aggressively attempting to expand into Canada, domestic discount closeout retailer Big Lots made the tough decision to exit this market in December 2013, catching many investors by surprise.

After all, the company had only entered the market two years prior and had already invested quite heavily in the venture. The announcement triggered a sharp sell-off, which sent its shares to their lowest level in nearly four years.

But this decision has proven to be the right move, so far.  The divestiture allowed the company to focus all its efforts on improving its significantly larger core US operations, which had also suffered from weak sales trends. 

Thus, the company embarked on a three-year strategic initiative designed to provide a better overall shopping experience for its core customers.

The first leg of this plan focused on providing a more consistent assortment of goods.  With these key merchandising efforts substantially complete, the company’s focus has now shifted towards maximizing sales productivity and profit margins at its stores. 

With these actions quickly bearing fruit, BIG has seen a meaningful rebound in both comparable store growth and profit margins over the past five quarters. 

Yet with the company just halfway through this multi-year plan to revamp its US store base, the best is still yet to come in our view. 

Thus, we think investors who take advantage of the stock’s recent market-related decline will find themselves handsomely rewarded for their effort.

This sets the stage for better sales productivity levels and margin expansion ahead. Thus, with the recent weakness in the equity market contributing to a roughly a 9% drop in the stock over the past several weeks, we think now is a great time to get in on BIG.

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