Strangely, Mr. Market likes discounter Big Lots Inc. (NYSE: BIG) in a pandemic.
Incredibly, Big Lots’ share price grew from $27.68 on 2 January 2020 to $38.87 on 20 January 2020 to $41.73 on 23 July 2020. That’s odd because Big Lots is an old-fashioned discounter that sells overstock items in messy stores.
In contrast to the stock, Big Lots’ revenues are shrinking. To elaborate Big Lots quarterly revenue fell from $1.607 billion on 31 January 2020 to $1.439 billion on 30 April 2020. However, Big Lots’ quarterly revenues grew from $1.296 billion on 30 April 2019.
Moreover, Big Lots’ quarterly gross profit fell from $634.02 million to $570.76 million between 31 January and 30 April 2020. Plus, Big Lots’ quarterly operating income fell from $125.55 million to $74.44 million in the same period.
Conversely, Big Lots’ quarterly operating income grew from $25.64 million on 30 April 2019. Additionally, Big Lots reported a quarterly common net income of $93.76 million on 31 January 2020 that fell to $49.32 million three months later.
How Much Cash Is Big Lots Making?
Big Lots (NYSE: BIG) has more cash than it did last year. For instance, Big Lots reported a quarterly operating cash flow of $146.12 million on 30 April 2020. That grew from $57.44 a year earlier.
In contrast, Big Lots’ quarterly operating cash flow fell from $258.42 million on 31 January 2020. Impressively, Big Lots’ ending cash flow rose from -$9.07 million on 31 January 2020 to $311.87 million on 30 April 2020. Big Lots reported a $63.57 million ending cash flow on 30 April 2019.
Yet, I think Big Lots could borrow money to finance its operations. To explain Big Lots reported a $141.94 million operating cash flow on 30 April 2020. I think Big Lots raised that cash with debt.
Consequently, Big Lots reported $311.87 million in cash and short-term investments on 30 April 2020. That number grew from $52.72 million on 31 January 2020 and $63.57 million on 30 April 2019. Thus, Big Lots has more cash than it did last year.
What Value Does Big Lots Have?
Big Lots has more value than last year in the form of $3.322 billion in current assets on 30 April 2020. That number grew from $3.045 billion on 30 April 2019.
I think Big Lots (NYSE: BIG) value is questionable because Mr. Market could base his valuation on the company’s real estate value. Currently, Big Lots operates over 1,400 brick and mortar stores in 47 U.S. states.
I question the value of those stores because Big Lots is vulnerable to Amazon (NASDAQ: AMZN). To explain, Amazon offers most of the products Big Lots sells at comparable prices. Yet, Amazon is more convenient because it offers free delivery through Amazon Prime.
Can Big Lots Survive?
Amazon Prime had 112 million subscribers in the United States in June 2020, Digital Commerce 360 estimates. Thus, there are 112 million American households with access to free two-day delivery from Amazon.
Hence, 112 million households can order basic household supplies through Prime and get them fast with no extra cost. Thus, the people in those households have no reason to shop at Big Lots.
Under those circumstances, I wonder how Big Lots will survive coronavirus. Remember, Coronavirus has people trapped at home and afraid to go out and shop. Moreover, many people are afraid to shop at bargain stores such as Big Lots that could be unsanitary.
However, Amazon can deliver the stuff families need for free at a competitive price without coronavirus exposure. Thus, I think Big Lots could die if coronavirus makes millions of people afraid of shopping.
What Value Could Big Lots Have
Big Lots (NYSE: BIG) brick and mortar stores could have some value if management is open to unconventional uses.
For example, Big Lots could partner with other retailers to create joint venture stores. Low-end department Kohl’s (NYSE: KSS) is pioneering such a business model.
For instance, Kohl’s is sharing its store space with the popular discount grocer Aldi. Kohl’s hopes to share store space at over 300 locations, Taste of Home claims. Additionally, Kohl’s accepts Amazon returns at its stores.
Brands Big Lots could partner with include; Amazon, Kohl’s, Aldi, Trader Joe’s, Best Buy (NYSE: BBY), Walgreens (NASDAQ: WBA), Kroger (NYSE: KR), and Starbucks (NASDAQ: SBUX).
An obvious use for some Big Lots locations could be a mini-fulfillment center for online delivery. To elaborate, drivers could pick up online orders from Big Lots and take them to customers. Trucks could drop orders from fulfillment centers off at Big Lots.
An advantage to such partnerships is that Big Lots could expand its footprint with fewer risks. Another advantage is Big Lots could enter more neighborhoods or communities. For instance, Big Lots could enter more expensive or upper-class communities by having a partner cover part of the rent. In addition, Big Lots could move into some urban areas.
Is Big Lots a Good Dividend Stock?
I consider Big Lots (NYSE: BIG) an excellent dividend stock because it paid a 30₵ quarterly dividend on 26 June 2020.
Overall, Dividend.com estimates Big Lots offered a $1.20 annualized dividend and a 2.91% dividend on 23 July 2020. I think Big Lots is worth owning for the dividend but it is a risky stock.
To explain, I cannot see how Big Lots can compete with Amazon with its current business model. However, Big Lots’ shares are cheap and the company is making enough money to survive for a few months.
I advise you to look at Big Lots if you want a cheap dividend. However, be careful because Big Lots is a weak company in a collapsing industry: brick and mortar discounting.
Originally published at https://marketmadhouse.com on July 23, 2020.