What happened

Shares of Big Lots (BIG -3.70%) were pulling back today after the discount retailer posted disappointing results in its third-quarter earnings report.

As of 2:11 p.m. ET, the stock was down 8.2%.

So what

Big Lots said comparable sales in the quarter fell 11.7% and revenue was down 9.8% to $1.2 billion, which essentially matched estimates at $1.21 billion.

Gross margin in the quarter tumbled 490 basis points to 34%, which seems to be a reflection of the increasingly promotional retail environment as retailers like Big Lots try to shed excess inventory. Selling and administrative expense also soared 530 basis points to 41.8% as the company lost leverage from the decline in sales.

As a result of that margin pressure, the company's adjusted per-share loss widened from $0.14 to $2.99, which was slightly worse than the consensus of a loss of $2.94.

While the weak performance was largely expected and in line with guidance, it still shows how poorly Big Lots is performing, and given the weakening consumer environment, analysts seem to expect it to get worse.

CEO Bruce Thorn took an optimistic tone, saying, "The third quarter marks another quarter in which we met the challenges of a tough environment head on and did what we said we would do. Our sales and gross margin were in line with guidance and, importantly, year-over-year inventories continued to come down materially."

Now what

Management's guidance was not encouraging, either. The company expects comparable sales to fall by low double digits in the fourth quarter, and it said gross margin would improve sequentially but remain in the mid-30s range. It declined to give earnings guidance due to a wide range of possible outcomes.

Analysts expect earnings per share of $1 in the fourth quarter, but with the company's challenges and weakening retail environment, it seems like it will struggle to get there.

Given the declining revenue and compressing margins, this retail stock is best avoided.