The good news is that we've seen the national average of gasoline prices drop from about $5.10 a gallon in mid-June to last week's $4.44. However, I'd stop short of using the word "plummet" that I've seen uttered often in the media because it does not recognize just how steep the run up to $5.10 a gallon was.
I also shudder to think what the winter might look like in terms of heating costs. Those of us using No. 2 heating oil saw prices hit $5 a gallon in March from a full-service dealer; as of this morning, that price is $5.80 a gallon. A cold winter and rising demand could push that price even higher. Putting out $60 to $100 to fill your gas tank is painful for many, but being hit with a $1,400 oil bill is worse. Although far less frequent than going to the gas station, that is a big chunk of change that may be a game-changer for many consumers and could forcefully change other spending habits.
That possibility has me looking for the places where consumers may shop in the face of budget squeezes, and there is one down-and-out name that has been hiding in plain sight. I hit discounter Big Lots (BIG) , which has a quirky mix of merchandise, several times a year, but it has been a while since I took a look at it as a potential investment.
Big Lots has been hammered this year, with its shares down 57% year to date, and it is trading at similar levels to February 2009. However, at that point, Big Lots had 82.5 million shares outstanding, putting its market cap back then at about $1.7 billion. Through the years, Big Lots drastically has reduced shares outstanding to the current 28.6 million, putting its current market cap at just $584 million. That's the total for a chain with a fairly big presence, specifically 1,438 stores in 47 states.
Granted, it has been a rough ride the past four quarters for Big Lots, at least in terms of hitting consensus estimates; BIG has four straight misses. The last one, for the first quarter of fiscal 2023, was particularly brutal, with the company losing 39 cents a share against consensus estimates of a profit of 94 cents a share.
Consensus estimates are calling for a loss for fiscal 2023, which ends in January, followed by earnings of $1.82 a share in fiscal 2024 (based on nine analysts) and $4.35 a share in fiscal 2025 (just two analysts weighing in), which would put the one- and two-year forward price-to-earnings ratios at 9 and 5, respectively.
Big Lots ended its latest quarter with $62 million in cash and $271 million in debt, putting the enterprise value (EV) at just under $800 million. On an EV to location basis, that works out to just $550,000 per store. Inventories are also up considerably, from $902 million to $1.34 billion quarter over quarter.
BIG currently pays a 30-cent quarterly dividend, good for a 5.94% yield; time will tell if the company is able to sustain that payout. Overall, investors don't think too much of BIG, given the current 37% short-interest ratio.
The next progress report on Big Lots should be on Aug. 26, when the company is expected to roll out second-quarter earnings. Not much is expected, given the consensus estimate of a loss of $2.35 a share. Big Lots is not for the faint of heart and I am still trying to decide if this is a falling knife or diamond in the rough.
