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On Jun 10, we downgraded our long-term recommendation on Big Lots, Inc. (BIG - Analyst Report) to Underperform based on the company’s dismal first-quarter fiscal 2013 performance. The stock currently carries a Zacks Rank #4 (Sell).

Why the Downgrade?

Estimates for Big Lots have shown a downtrend since the company reported disappointing first-quarter results on May 30, 2013 that prompted management to take a conservative stance on its future sales and earnings outlook.

The quarterly earnings, including the U.S. and Canadian operations, came in at 61 cents a share that met the Zacks Consensus Estimate but dipped 10.3% from the prior-year quarter. Net sales also portrayed an unimpressive growth of 1.3% to $1,311.3 million and fell short of the Zacks Consensus Estimate of $1,326 million. The company stated that delay in tax refund and adverse weather conditions refrained consumers from buying. Comparable-store sales declined 2.9%.

Following soft first-quarter results, Big Lots now projects fiscal 2013 earnings between $2.87 and $3.12 per share down from a range of $3.05 to $3.25 forecasted earlier. Net sales are now expected to increase in the range of 1% to 2%, down from 2% to 3%.

Consequently, we are witnessing a fall in the Zacks Consensus Estimate. The Zacks Consensus Estimate for the second quarter of fiscal 2013 plunged 41.9% to 25 cents over the past 30 days but remained unchanged for the third quarter, portraying a loss of a penny. Moreover, the Zacks Consensus Estimate for fiscal 2013 fell by 5% to $3.02 and for fiscal 2014 it tumbled by 6% to $3.27 per share, over the same time frame.

Cause for Concern

The key concerns for Big Lots remain waning domestic comparable-store sales, sluggish sales of discretionary items in a low income consumer environment, and soft sales of the higher margin seasonal products. The fall in the Zacks estimates indicates losing market share, which is hurting its profitability and the grappling consumables category, when compared with other discount chains.

Other Stocks That Warrant a Look

Not all stocks in the non-food retail, wholesale sector are performing as disappointingly as Big Lots. Other stocks worth considering include Flowers Foods, Inc. (FLO - Snapshot Report) and Bon-Ton Stores Inc. (BONT), both of which hold a Zacks Rank #1 (Strong Buy), and J&J Snack Foods Corp. (JJSF - Snapshot Report), which carries a Zacks Rank #2 (Buy).

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