Big Lots, Inc. has been a weak performer for a while now due to multiple headwinds. Macroeconomic pressures, waning consumer confidence and a pullback in spending activity have impacted retailers, and Big Lots is not immune to the same. The company posted weak first-quarter fiscal 2023 results, wherein the top and bottom lines declined year over year, and missed the Zacks Consensus Estimate. Management is taking a cautious approach for the rest of fiscal 2023.

Driven by these limitations, shares of this Columbus, OH-based company have lost 40.7% in the year-to-date period, against the industry’s 0.6% gain. For fiscal 2023, the Zacks Consensus Estimate for Big Lots’ sales and earnings per share (EPS) is currently pegged at $4.93 billion and at a loss of $9.30, respectively. These estimates show corresponding decreases of 9.8% and 56% from the year-ago period’s figures.

For fiscal 2024, the consensus estimate for sales and EPS is currently pegged at $4.87 billion and at a loss of $6.07, respectively. These estimates show corresponding declines of 1.3% and 34.6% from the year-ago period’s figures.

Let’s Delve Deeper

We note that a tough macroeconomic landscape including inflationary pressures and changing consumer behavior have been weighing on the company’s performance. Markdowns to optimize inventory levels and an elevated promotional environment have been weighing on margins. It has been witnessing higher selling, general and administrative (SG&A) expenses, as a rate of sales, for a while now.

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The volatility caused by the macroeconomic environment hurt the first-quarter fiscal 2023 results. The company reported an adjusted loss of $3.40 per share for the first quarter, wider than the Zacks Consensus Estimate of a loss of $1.95 per share and a loss of 39 cents per share seen in the year-earlier quarter. Net sales also fell 18.3% to $1,124 million and missed the consensus estimate of $1,186 million. The year-over-year downside was due to soft comparable sales (comps). Comps fell 18.2%, hurt by roughly 300 basis points (bps) owing to product shortages in furniture stemming from the closure of the company’s largest vendor in November.

In addition, furniture sales, particularly Broyhill upholstery, were hurt by product shortages with respect to the abrupt closure of the company’s largest vendor United Furniture Industries in November, whereas seasonal lawn and garden was impacted by unfavorable weather.

Margins were also weak in the reported quarter. During the reported quarter, gross profit declined 22.2% year over year while the gross margin contracted 180 bps to 34.9%. Impacts from higher levels of late-quarter promotions that targeted the seasonal and furniture categories hurt the metric. As a percentage of net sales, SG&A expenses increased 460 bps to 45.3%.  Further, the company recorded an adjusted operating loss of $118 million in the reported quarter.

Moving ahead, management expects the fiscal second quarter to remain challenging and to witness pressure in the market environment, mainly in higher ticket and discretionary items. For the second quarter of fiscal 2023, Big Lots expects comps to decline in the high-teens range. Product shortages in furniture are likely to hurt comps by roughly 100 bps. Management highlighted that earnings momentum is likely to be weighted toward the second half of the fiscal year, on better actions and reductions in freight costs. Given the highly volatile macroeconomic backdrop, management did not give guidance for the fiscal year.

What’s More?

All the aforesaid negatives make Big Lots a current Zacks Rank #4 (Sell) company now. A VGM Score of F further adds to the weakness.

On the positive front, Big Lots is leaving no stone unturned to tap the best in the market, which is clear from its efforts to leverage marketing strategies, with loyalty databases and e-commerce enhancement. Management has also been taking steps to control expenses and drive productivity. In addition, BIG’s transformation initiative, referred to as Operation North Star, seems encouraging.

However, we remain cautious about the stock in the near term given the aforesaid weaknesses.

Solid Picks in Retail

We have highlighted three better-ranked stocks, namely Abercrombie & Fitch (ANF Quick QuoteANF - Free Report) , American Eagle Outfitters (AEO Quick QuoteAEO - Free Report) and Stitch Fix (SFIX Quick QuoteSFIX - Free Report) .

Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 3.4% and 732%, respectively, from the year-ago reported figures. ANF delivered a trailing four-quarter earnings surprise of 480.6%, on average.

American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO delivered an average earnings surprise of 9.2% in the trailing four quarters.

The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year EPS suggests growth of 4.1% from the year-ago reported figure.

Stitch Fix, the lifestyle apparel and accessories retailer, currently carries a Zacks Rank of 2. The company has a trailing four-quarter earnings surprise of 7.7%, on average.

The consensus estimate for Stitch Fix’s current financial-year EPS suggests growth of 9.6%, from the year-ago reported figure.