Costco v. BJ’s v. Big Lots: A Surprise Winner (COST, BJ, BIG, WMT)

Costco Wholesale (COST) reported earnings this morning the same day as BJ’s Wholesale (BJ).  Even Big Lots (BIG) got in on the earnings game.  Considering that we are in the midst of an economic recovery, the winner was actually surprising. Very surprising.

Costco (COST) missed its earnings expectations this morning.  The higher-end of the big-box retailers posted $0.70 EPS vs. $0.72 estimates from Thomson Reuters.  The sales mix was actually a favorable one as its same-store sales in February were up 9% and revenues came in at $18.74 billion versus estimates of $18.53 billion.  The company’s margins came in sightly above plan at 12.5%.

BJ’s (BJ) also came in a tad light at $0.95 EPS versus Thomson Reuters figures of $0.96 EPS. Revenues grew about 9% to $2.8 billion versus estimates of $2.79 billion, yet same-store sales jumped 4.6%. The guidance on the earnings front is $0.40 to $0.45 EPS versus $0.44 estimates; and for the full year ahead its guidance was $2.54 to $2.64 EPS, short of the $2.71 estimate.  What seems to be taking hold is a still-weak discretionary spending trend, as well as gasoline buying and a high exposure to the Northeast for storms all weighed againstthe company.

Big Lots (BIG) was actually the surprise here.  The company gets lumped in with Costco, although it is probably more of a cross between Tuesday morning and a dollar store.  It earned $1.31 EPS versus Thomson Reuters estimates of $1.28 EPS.  Revenues rose by 7% to $1.46 billion versus estimates of $1.45 billion. As far as guidance, Big Lots forecast $0.60 to $0.65 EPS in the next quarter and gave guidance of $2.65 to $2.75 EPS for the year.  Thomson Reuters had estimates of $0.53 and $2.64 respectively.  Shares put in a new 52-week high above $35.00 today.

The 30% improvement in operating profit at Big Lots trumped the 25% gain at Costco and significantly trumped that of BJ’s.  But Big Lots also increased its share buyback program by $250 million to a new total of $400 million in shares, with $150 million of the total to be an accelerated repurchase plan to start this quarter.

The big concern here at Costco is one of valuation.  In this week’s earnings preview we noted how its forward P/E is almost 20… far higher than peers.   Big Lots trades at close to 13-times forward earnings, and BJ’s trades just above 13-times forward earnings.  BJ’s shares are down 5% at $34.62 and its 52-week high is $39.59.

Costco shares were within a half-percent of 52-week highs before earnings and it is actually very surprising that the stock has not sold off more.  Shares were down 5% early but are now only down 0.45 at $61.12.

As you parcel through the numbers, it shows some problems at Wal-Mart (WMT).  Its big-box Sam’s  Club helped, but the Wal-Mart store brand was poor.  It seems almost infathomable that Big Lots is the trade-up winner.  Costco and BJ’s were winners on sales, but it is not translating to meeting earnings.

It is obvious that weather and a tight discretionary spending environment are continuing to impact earnings. The notion that this was comparing February 2009 is surprising that sales were not even better.  Go look at your calendar a year ago and you might see scribbles for tomorrow’s appointments having the ‘(if the world doesn’t end)’ next to it.

It seems Big Lots is the best of today’s breed…. Long Live Frugality.  Long Live the Recession.

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