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BIG Stock: Big Lots still has a long way to go. Here is why

Discount retailers are relatively less affected by the macroeconomic challenges as they have become the preferred shopping destinations for consumers affected by high inflation and squeezed personal finances. However, Big Lots, Inc.  (NYSE: BIG) seems to have missed the bus due to factors like the underlying weakness of the business and unfavorable merchandise mix.

The Columbus-based discount store operator, which is focused on categories like furniture and soft-home, often disappointed shareholders in the recent past with its not-so-impressive financial performance. The stock has been on a losing streak for over a year now, with the value more than halving since the beginning of 2022. The optimism related to recent hikes in selling prices has already been factored into the valuation.

Hold It!

Given the bearish outlook on the stock and mixed cues on its future prospects, BIG continues to be a risky investment. Though the sentiment improved slightly after this week’s earnings beat, it is advisable to put buying decisions on hold for now and keep an eye on the stock. The continuing pressure on profitability got worse this year due to macroeconomic issues and rising inflation. Elevated operating costs, including rising fuel expenses, could be a cause for concern since pandemic-related tailwinds like the stimulus have diminished.


Dollar General Q2 2022 Earnings: Key financials and quarterly highlights


Big Lots’ inability to stay consistently profitable has long been a concern. Earnings missed analysts’ estimates quite often, eliciting negative reviews from market watchers. In the first two quarters of the year, the bottom line remained in the negative territory, with the latest number slightly beating estimates after two consecutive misses.

Q2 Results

For the second quarter, the company reported an adjusted loss of $2.28 per share. Unadjusted net loss was $84.2 million or $2.91 per share, compared to a profit of $37.7 million or $1.09 per share in the prior-year quarter. The bottom line was negatively impacted by a 7.6% decrease in net sales to $1.35 billion. Comparable store sales were down 9.2%.


Read management/analysts’ comments on quarterly results


“We are moving faster to provide even better deals and assortments for our customers by leveraging our vendor relationships and excellent private label brands. We are also building additional capabilities to grow our eCommerce business. We remain highly confident in the enormous value creation opportunity from Operation North Star, and I’ve never been more excited about the future,” said Big Lots’ CEO Bruce Thorn.

Growth Plan

Meanwhile, the company has made good progress in enhancing its omnichannel capabilities and that is expected to drive growth in the long-term, considering the shift in customers’ shopping habits. Also, efforts are on to streamline marketing strategies and better leverage loyalty databases.  

Big Lots’ management recently came under pressure from activist investors seeking to sell the company, citing its lackluster financial performance and relatively low stock value. However, the proposal was not taken forward as the majority of the stakeholders did not find it convincing.

BIG started Tuesday’s session sharply higher after the market reacted positively to the earnings report, and maintained the uptrend throughout the day. In the past six months, meanwhile, it lost about 32%.

Categories: Analysis Retail
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