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Here's Why Investors Should Avoid Big Lots Stock for Now

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Big Lots, Inc. (BIG - Free Report) stock has been losing sheen lately. A look at the company’s price performance reveals that the stock has witnessed an unimpressive run on the bourses in the past six months. Shares of this Zacks Rank #5 (Strong Sell) company slumped 32.5% in the said time frame, underperforming the industry’s decline 9.8%. 

Further, the Zacks Consensus Estimate for fourth-quarter fiscal 2018 earnings have moved south by 62 cents in a month to $2.31. This indicates exceedingly bearish analyst sentiment as reflected by five downward estimate revisions versus none upward over the past 30 days. Also, the Zacks Consensus Estimate for fiscal 2018 and 2019 has gone down by 79 cents and $1.09 to $3.66 and $3.67, respectively. 

What’s Hurting the Stock?

Big Lots seems to be grappling with dismal margins for the last two quarters. The company witnessed gross margin contraction of 10 basis points (bps) to 39.9% in the third quarter, owing to high seasonal markdown rate and elevated costs from higher tariff. Prior to this, the company’s gross margin rate declined 20 bps in the fiscal second quarter. Going ahead, Big Lots expects gross margin to decline in the fiscal fourth quarter.  

Moreover, the company’s sluggish bottom-line surprise trend, which continued in third-quarter fiscal 2018, remains a concern. The company’s adjusted loss per share in the third quarter marked its third consecutive bottom-line miss. Results were affected by soft gross margin and higher SG&A expenses, which led to reporting an operating loss in the quarter. 

Additionally, a soft view for the fourth quarter and fiscal 2018 is discouraging. Management expects earnings of $2.20-$2.40 per share in the fiscal fourth quarter, down from the previous guidance of $2.90-$3.00. Comps are likely to be flat to up 2%. For fiscal 2018, adjusted earnings per share is projected to be $3.55-$3.75 compared with the prior guidance of $4.40-$4.55. Also, the company expects cash flow generation of nearly $10-$20 million, which is significantly lower than $100 million anticipated earlier.

Bottom Line

Despite such downsides, the company is making efforts to improve performance. Additionally, Big Lots is focussing on Store of the Future initiative and the e-commerce business. However, it will take time for these strategies to reap benefits.

3 Retail Stocks to Bank On

Boot Barn Holdings, Inc. (BOOT - Free Report) has long-term earnings growth rate of 23% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Deckers Outdoor Corporation (DECK - Free Report) has long-term earnings growth rate of 11.3% and a Zacks Rank #2 (Buy).

Burberry Group PLC (BURBY - Free Report) has long-term earnings growth rate of 23% and a Zacks Rank #2.

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