Big Lots Highlights Strength in Discount Retail

Discount retail chain Big Lots, Inc. (ticker: BIG) has joined the handful of companies to report a big earnings beat in what has largely been a weak first quarter for the U.S. retail sector.

After a positive report from Costco Wholesale Corp. (COST) on Thursday and Big Lots on Friday, it is becoming increasingly clear that discount retailers are avoiding problems plaguing the rest of the sector.

Big Lots reported first-quarter diluted earnings per share of $1.15 on revenue of $1.29 billion. Earnings topped consensus analyst forecasts of 99 cents, while revenue came up just short of Wall Street’s $1.31 billion estimate. Big Lots also raised its full-year 2017 EPS guidance from a range of $3.95 to $4.10 up to a range of $4.05 to $4.20.

“I’m pleased to report record earnings per share for [the first quarter] despite a very challenging environment for most traditional retailers,” CEO David Campisi says. “After a slow start to the quarter in February, our ownable and winnable merchandise strategy demonstrated its resiliency by bouncing back with low to mid-single digit comps in March and April, along with solid comp store performance month-to-date in May to start second quarter.”

While large retailers such as Macy’s (M), J.C. Penney Co. (JCP) and Nordstrom (JWN) all came up short in the first quarter as they struggle to compete with (AMZN) and other e-commerce retailers, discount retailers have shown there’s still room to thrive in the Amazon era.

“The only sectors insulated from this online takeover are those who ship materials difficult to deliver over the internet, such as off-price merchandise, or deep value & consumable products,” Susquehanna analyst Bill Dreher says.

Despite Big Lots’ big quarter, CNBC analyst Jim Cramer says TJX Companies (TJX) and Burlington Stores (BURL) currently offer investors better value in the discount retail space. “Big Lots is a discounter, and discounters have done better than the big caps,” Cramer says. “I would rather buy Burlington up $4. I’d rather buy TJX right here.”

After initially spiking more than 8 percent on Friday morning, Big Lots shares are trading…

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