Why Big Lots (BIG) Shares Are Trading Lower Today

What Happened:

Shares of discount retail company Big Lots (NYSE:BIG) fell 27.6% in the morning session after 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." The company added that it will report its fourth quarter and full year 2023 results on March 7, 2024. 

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."

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 79 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 6 months ago, when the stock gained 5.9% on the news that the company reported impressive second quarter results on the back of weak peer earnings and likely low expectations. Same-store sales, revenue, and EPS (when excluding a number of one-time charges) all beat Wall Street analysts' expectations. 

Additionally, forward commentary was encouraging. Management stated that "we are now in a position to get back to playing offense. This will be supported by the incredible efforts of our associates, and our outstanding vendor partners, who remain aligned with our efforts to offer great quality products and amazing value. As we make further progress on our five key actions, we are optimistic that trends will continue to improve, albeit slowly, through the remainder of this year, aided by a higher penetration of bargains, more newness in our assortment, freight reductions, ongoing cost reduction and productivity efforts, more effective promotions, and a more normalized level of markdowns." 

Lastly, Big Lots recently executed on sale leaseback transactions that have resulted in $300 million of proceeds, which is strengthening its liquidity position. Overall, it was a strong quarter for the company.

Big Lots is down 54.1% since the beginning of the year, and at $3.67 per share it is trading 78.6% below its 52-week high of $17.09 from February 2023. Investors who bought $1,000 worth of Big Lots's shares 5 years ago would now be looking at an investment worth $116.22.

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