Given the interest in DG and DLTR here, I wondered if anyone had looked at Big Lots (BIG)? Not the same space as DG and DLTR, but similar in that it is a discount (closeout) retailer of furniture, home goods and seasonal item, but food does make up 25% of sales. They are debt free, have more than doubled revenue per share over the past decade (in part by nearly having share count), and generate a ton of FCF (over $10/sh according to VL). At $33/sh they currently trade at a PE of ~6. They are expected to generate about $8/sh in five years. If we like DG, why not BIG?



I agree that BIG looks interesting and quite cheap. It also sports a decent 3.3% dividend at current prices.

It has been a steady earner (much like DG), but the big difference is that BIG’s shareholder equity has been erratic. For example, it fell from $901 million in 2013 to $650 million in 2016. I wonder why?

That said, the shareholder equity has been on a nice upward trajectory in the last five or so years.

The EPS is expected to be $8.00/share in 2025 (central estimate), which means that at the current price of $34.76, the buyer will pay only 4.35 times the EPS in 2025. This sounds too good to be true and I wonder if there is a catch somewhere.

Why is the market discounting BIG so much?


It could be the debt levels are concerning for many. The debt level has tripled since 2019,and the margins are not generous. Stores like this can also hide negative news in inventory. I remember in the nineties that Michaels stores suffered about a 50% writedown in inventory. Just a quick look at why they seem cheap.



@JK: The rising debt level is the result of a capital lease back deal in 2020 where BIG sold four distribution centers for $750 mil (…). Certainly the debt load given this deal should be a concern, although the money from the deal was used to eliminate revolving debt and reduce share count. The deal also explains the big bump in shareholder equity between 2019 and 2020. Margins are certainly less attractive than DG. BIG is, however, generating a ton of FCF which it has returned to shareholders through a 27% reduction in share count and near $6/sh in dividends over the past five years. I’ve decided to open a small position at these valuations.