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Why Big Lots Stock Just Got Smaller

By Rich Smith – Aug 27, 2021 at 1:03PM

Key Points

  • The retailer's quarterly results didn't live up to analysts' expectations.
  • It's going to have challenges in Q3, too.

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Big Lots missed earnings in Q2 -- and will keep on missing all year long.

What happened

Shares of Big Lots (BIG -3.94%) are falling today, down by 4% as of 12:41 p.m. EDT, after the discount retailer posted underwhelming earnings for its fiscal second quarter of 2021.

Heading into the report, analysts had forecast that Big Lots would earn $1.13 per share on sales of $1.48 billion. Big Lots, however, missed on both the top and bottom lines, reporting sales of $1.46 billion and earnings of $1.09 per share.  

Falling white line superimposed over columns of blue numbers.

Image source: Getty Images.

So what

Admittedly, that doesn't sound like a huge miss, and the stock isn't down huge in response to it -- just a small handful of percentage points.

Although sales declined 11% year over year, they were up 16% from the pre-pandemic Q2 2019. (This is the kind of double comparison that a lot of retail stocks have been making lately, by the way, given what an "asterisk" kind of a year 2020 was.)

Earnings fell toward the high end of the range Big Lots had previously guided to, but the company had to admit that there was a steep fall from the $8.54 per share that it had earned in last year's Q2. Granted, most of that prior-year profit had come from a "one-time, after-tax benefit" from "sale and leaseback transactions" entered into during the pandemic, but even backing that out, Big Lots still would have earned $2.75 a year ago pro forma.

Compared to that, this year's second-quarter profit of $1.09 per share seemed an even bigger disappointment.

Now what

But things could still get worse -- and probably will.

Citing "continued supply chain and freight headwinds, as well as other inflationary pressures," CEO Bruce Thorn warned that Big Lots is probably looking at a $0.10- to $0.20-per-share loss in the fiscal Q3 currently underway (versus Wall Street's expected profit of $0.09 per share), with a "mid-single digit comparable sales decline" and gross profit margin down 175 basis points. Big Lots further warned that full-year earnings will probably come in between $5.90 and $6.05 per share, considerably below the $6.74 per share that Wall Street is expecting.

Translation: Big Lots missed earnings in Q2 -- and it's going to keep on missing all year long.

Rich Smith 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.

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