Why Big Lots (BIG) Stock Is Nosediving

Petr Huřťák /
2024/06/06 11:04 am EDT

What Happened:

Shares of discount retail company Big Lots (NYSE:BIG) fell 27.2% in the pre-market session after the company reported first-quarter earnings results. Its revenue and EPS unfortunately missed analysts' expectations as its same-store sales underperformed. On top of that, its full-year same-store sales forecast fell short of Wall Street's estimates, implying a weak operating environment. Management provided some reasons for the weakness, adding, "We missed our sales goals due largely to a continued pullback in consumer spending by our core customers, particularly in high ticket discretionary items." Looking ahead, the company did not share an earnings outlook, a yellow flag for investors. Overall, this was a bad quarter for Big Lots.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Big Lots? Access our full analysis report here, it's free.

What is the market telling us:

Big Lots's shares are quite volatile and over the last year have had 83 moves greater than 5%. But moves this big are very rare even for Big Lots and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 4 months ago, when the company dropped 27.6% on the news that Loop Capital analyst Anthony Chukumba downgraded the stock's rating from Hold to Sell and lowered the price target from $6 to $1. The new price target implied a potential 70% downside from where shares traded when the downgrade was announced. 

The analyst added, "We think Big Lots' financial situation is becoming increasingly precarious and find recent media reports the company has hired a turnaround consulting firm very concerning." 

To update the markets on its current situation, the company provided some comments regarding its preliminary fourth-quarter results, with Bruce Thorn, President, and CEO, saying, "I am pleased to share that we delivered fourth quarter performance in line with our guidance on comparable sales, gross margin rate, operating expenses, and inventory. In addition, we generated substantial cash flow in the quarter, which was used to pay down debt on our $900 million asset-based lending facility." 

It is worth mentioning that on Friday, February 9, 2024, Bloomberg reported that the company was in talks with bankers and investors for a loan amidst liquidity concerns. According to the report, a company representative added, "The company has taken significant actions to enhance our liquidity... and...will continue to evaluate potential liquidity options."

Big Lots is down 63.7% since the beginning of the year, and at $2.90 per share it is trading 72% below its 52-week high of $10.35 from July 2023. Investors who bought $1,000 worth of Big Lots's shares 5 years ago would now be looking at an investment worth $108.29.

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