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Bear of the Day: Big Lots (BIG)

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Retail has been one of the hottest sectors in 2018, up 13% for the year versus a return of just over 3% for the S&P 500. High-end retailers have performed especially well as low unemployment and a generally strong economy have left consumers with more disposable income.

(read about luxury retailers here>>)

Some of those gains have come at the expense of discount retailers as shifting consumer tastes and means have customers looking for higher priced goods and a better shopping experience.

Big Lots Inc (BIG - Free Report) is the nation’s largest retailer of closeout goods, selling a wide range of home products - primarily furniture and other household goods. In an otherwise strong retail marketplace, they have significantly underperformed the industry with shares declining 26% in 2018.

The catalyst for the declining shares has been disappointing revenues, earnings and guidance.

In their Q1 earnings report on June 1st, Big Lots reported gross sales of $1.27B, considerably lower than the $1.3B in revenues during the same period in 2017. The company reported earnings of $0.95/share, badly missing their own previous guidance of $1.15/share to $1.22/share.

Bog Lots also closed several retail stores during the quarter and declined to buy back any shares under its authorized share repurchase program, even as the share price declined.

The company’s future guidance didn't include any better news with both sales and earnings predicted to be essentially flat for the next quarter and full year 2018. At the end of a record earnings season - especially in the retail sector - the miss and flat guidance had investors running for the exits.

Seven out of seven analysts represented in the Zacks Consensus Estimate subsequently lowered their estimates for 2018 to an average of $4.57/share, down from $4.88/share 30 days ago. Big Lots is now a Zacks Rank #5 (Strong Sell).

In an environment where many retailers are beating estimates, opening new outlets and raising guidance, it doesn’t make sense for investors to stick with a company like Big Lots, which is barely treading water.

Retail investors should take a look instead at luxury options like Tiffany (TIF - Free Report) or The Movado Group (MOV - Free Report) , both Zacks Rank #1 (Strong Buy).


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