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Bear of the Day: Big Lots (BIG)

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Based in Columbus, OH, Big Lots (BIG - Free Report) is a discount retailer that offers products under various merchandising categories including Food, Consumables, Furniture, Seasonal, Soft Home, Hard Home, Electronics, and Toys & Accessories.

Q2 Earnings Recap

Last month, Big Lots reported disappointing second quarter earnings.

The retailer missed expectations on both the top and bottom line, reporting earnings of $1.09 per share and revenue of $1.46 billion (vs. estimates of $1.13 and $1.48 billion, respectively). Revenue slipped 11% year-over-year but was up 16% compared to Q2 2019.

Segment performance was mixed too. The company’s Seasonal division reported a 15% comps decline, but Apparel, Electronics & Other jumped 15% year-over-year. The Soft Home and Hard Home categories performed strongly against the same period in 2019.

As for e-commerce, overall demand increased 10% compared to the prior-year period.  Management attributed investments in search, purchase, and fulfillment capabilities and services like buy-online-pickup-in-store to the company’s online growth.

Bottom Line

BIG is now a Zacks Rank #5 (Strong Sell).

Five analysts have cut their full year earnings outlook over the past 60 days. Big Lots’ bottom line is expected to decline about 18% year-over-year, and the consensus estimate has fallen $0.66 to $6.03 per share for fiscal 2021. Next year’s earnings consensus has dropped as well, but Wall Street expects earnings to slightly increase by 3.3% to $6.23 per share.

Shares have been volatile so far in 2021. Year-to-date, BIG is up roughly 11% compared to the S&P 500’s gain of 18%.

Unfortunately, business may still be rocky for the time being. CEO Bruce Thorn warned that Big Lots may be looking at a 10 to 20 cent loss per share for the current third quarter due to “continued supply chain and freight headwinds, as well as other inflationary pressures,” as well as a mid-single digit comparable sales decline and gross profit margin to decrease 175 basis points.

Potential investors may want to wait on the sidelines until the outlook improves.

Those who are interested in adding a discount retail stock to their portfolio could consider The TJX Companies (TJX - Free Report) . TJX is a #1 (Strong Buy) on the Zacks Rank. Eight analysts have raised their earnings outlook for the current fiscal year, and earnings are set to soar about nearly 850% year-over-year.

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