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Big Lots Downgraded to Strong Sell

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On Dec 12, 2013, Zacks Investment Research downgraded Big Lots Inc. (BIG - Free Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

The company reported dismal third quarter fiscal 2013 results on Dec 5, 2013; wherein its consolidated adjusted loss per share of 16 cents was wider than the Zacks Consensus Estimate of loss of 8 cents as well as the prior-year quarter loss of 11 cents.

Adjusted consolidated net sales increased 1.6% year over year to $1,152.4 million but missed the Zacks Consensus Estimate of $1,164.0 million.  Consolidated comparable-store sales fell 2.5%. U.S. comparable-store sales declined 2.5%. Net sales for its Canadian operations fell 1.9% to $38.3 million in the quarter. Also, comparable-store sales dropped 0.9%.

The unprofitable Canadian markets have been a big concern for Big Lots and hence, it has decided to wind up its operations there. For the fourth quarter of fiscal 2013, Big Lots anticipates loss from Canadian operations to be around 65–75 cents per share. However, by first-quarter fiscal 2014, the company expects to shut down all primary operations and stores and report these as “discontinued.”

Additionally, the company operates in a highly competitive discount retail space and faces stiff competition from bigger players like Target Corp. (TGT - Free Report) . The rivals having larger number of stores, greater market presence and financial resources will continue to weigh on the Big Lots’ results.

This Ohio-based company provided a conservative outlook for fourth-quarter 2013. The soft quarterly performance triggered a downtrend in the Zacks Consensus Estimate, as analysts are less constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that fell 21.4% to $2.31 for fiscal 2014 and 21.2% to $2.56 per share for fiscal 2015 in the past 30 days.

Other Stocks That Warrant a Look

Not all retail stocks are performing as diappointingly as Big Lots. Other better-ranked stocks in the retail sector are G-III Apparel Group, Ltd. (GIII - Free Report) , holding a Zacks Rank #1 (Strong Buy), and PriceSmart Inc. (PSMT - Free Report) that carries a Zacks Rank #2 (Buy).

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