Shares of American retailer Big Lots (NYSE: BIG) were down 12.1% on May 27 after it reported weaker-than-expected Q1 results, significantly lagging both earnings and revenue estimates due to a decline in comp sales.
Investors were further dissuaded as the company refrained from providing FY2023 EPS guidance, citing uncertainty in the current environment.
Q1 Miss
The company reported an adjusted loss of $0.39 per share, which was significantly worse than the street’s estimated earnings of $0.98 per share.
The bottom line fell massively short of the company’s guidance for net income per diluted share of $1.10 to $1.20 provided on March 3.
Further, net sales declined 15.4% year-over-year to $1.37 billion and also lagged the analysts’ expectations of $1.28 billion.
The decline was a result of a 17% drop in comparable sales versus an 11.3% comparable sales last year.
Outlook
Based on the current uncertain environment, management refrained from providing earnings per share (EPS) guidance for FY2022.
For the second quarter, the company forecasts three-year comps to accelerate to positive mid-to-high single-digits, which implies mid-to-high single-digit negative comps versus 2021.
However, the company stated that net new stores will add about 150 bps of growth year-over-year.
CEO’s Comments
Big Lots CEO, Bruce Thorn, commented, “We expect the environment to remain challenging and we remain highly focused on managing the business prudently, which includes aggressively right-sizing our inventories over the course of Q2.”
He further added, “We are also accelerating SG&A cost reductions to generate over $70 million in additional savings this year. Further, we are strengthening our balance sheet by temporarily scaling back capital expenditures associated with new store openings and remodels.”
Wall Street’s Take
Following the Q1 miss, JPMorgan analyst Matthew Boss decreased the price target on Big Lots to $7 (74% downside potential) from $25 and reiterated a Sell rating.
Overall, the stock has a Moderate Sell consensus rating based on four Holds and four Sells. The average Big Lots price target of $28.13 implies 4.4% upside potential from current levels.
Conclusion
Big Lots shares have lost more than half of its market capitalization over the past year, significantly lagging the benchmark indices.
The company witnessed a significant slowdown in April, forcing it to increase markdowns.
Management thinks the slowdown was fueled by higher gas prices and overall rising inflation and remains focused on improving gross margin through various initiatives.
Investors should choose to keep a close watch on the performance going forward.
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