What happened

Shares of Big Lots (NYSE:BIG) were getting crushed today after the discount retailer issued a disappointing third-quarter earnings report and cut its full-year outlook. Though the company saw solid top-line growth, it came at the expense of profits, and the stock was consequently punished by investors. As of 11:20 a.m. EST, shares were down 23.1%.

So what

Big Lots posted comparable-store sales growth of 3.4%, toward the high end of the company's guidance of 2% to 4%, which drove total revenue up 3.6% to $1.15 billion, edging out estimates at $1.14 billion. 

A Big Lots employee smiles with merchandise in the backgorund

Image source: Big Lots.

Gross margin was essentially flat in the period, indicating that the company avoided inventory challenges and excessive discounting, but selling and administrative expenses rose 120 basis points to 38% of revenue, or $436.8 million, erasing the company's slim profit from a year ago. As a result, the retailer posted a loss of $0.16 per share in the quarter, worse than the company's guidance, and down from an adjusted profit of $0.06 per share a year ago.  That loss also badly missed analyst expectations at break-even.

New CEO Bruce Thorn said:

We were pleased to achieve our second consecutive quarter of positive comps, but our bottom line results fell short of our expectations. While we expect near-term results to be challenging this holiday season, we have a strong brand, great people, and we are working swiftly to enhance our current strategy, identify new growth opportunities, and position our business for profitable expansion well into the future.

Now what 

Looking ahead, Big Lots also cut its full-year earnings guidance, calling for adjusted EPS of $3.55 to $3.75, down from a previous range of $4.40 to $4.55 and worse than EPS of $4.45 a year ago. Management maintained comparable sales guidance at 1%.

For the key fourth quarter, the company now sees EPS of $2.20 to $2.40, down from $2.57 a year ago and prior guidance of $2.90 to $3.00. It also said it expects comparable sales of flat to 2% in the fourth quarter.

Big Lots shares hit a four-year low on the report. Given the unexpected third-quarter loss and the significant cut in guidance, it's not surprising to see the stock plunging. CEO Thorn, who assumed the leadership role at the end of September, clearly has his work cut out for him. 

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.