Big Lots (BIG) Hit By Coronavirus: Stock Falls 49% In A Month

The coronavirus pandemic has rattled most companies across the globe, Big Lots, Inc. (NYSE:BIG) being no exception. Resultantly, the company is lately losing investors’ favor, thanks to a soft view for first-quarter fiscal 2020. To top it, both earnings and revenues missed the Zacks Consensus Estimate in fourth-quarter fiscal 2019. The bottom line also declined 10.8% year over year.

Consequently, shares of this Columbus, OH-based company have crashed 49% in a month, much wider than the industry’s 17.5% decline.

Let’s Take a Look

Management expects first-quarter fiscal 2020 to be tough on account of supply chain disruption related to the coronavirus outbreak as well as upfront investments in higher-return growth initiatives. Supply chain disturbance owing to the outbreak and slow start to the first quarter remain major concerns. Big Lots projects comparable sales (comps) decline in low to mid-single digit range for fiscal first quarter.

Meanwhile, Big Lots is grappling with rising costs. Moreover, the company expects gross margin for the fiscal first quarter to be under pressure due to higher promotion expenses and adverse impact of tariffs. It also expects deleverage in S&A expenses in the first quarter and fiscal 2020 on account of upfront expenses and additional marketing support as well as wage pressure. Any deleverage in adjusted selling and administrative expenses has a direct bearing on the company’s profitability.

Consequently, this Zacks Rank #5 (Strong Sell) company envisions first-quarter fiscal 2020 earnings per share in the range of 30-45 cents, which suggests a sharp decline of 51-67% from 92 cents reported in the year-ago quarter. Clearly, apprehensions regarding the impact of the coronavirus outbreak are likely to mar the company’s performance and result in weak top and bottom lines in first-quarter fiscal 2020.

Apart from coronavirus-led concerns, Big Lots has decided to slow down its ‘Store the Future’ store concept on weakness in its sales trends. As a result, it plans to make ‘Store the Future’ conversions throughout the fiscal year, which will be nearly 80 stores. This will lend it a better opportunity to invest resources in more profitable areas.

While it is difficult to assess whether the company will be able to overcome the coronavirus impact anytime soon, Big Lots has been making transformation efforts, including the Operation North Star initiative that encompasses driving top-line growth, cost containment, and enhancement in systems and infrastructure.

Key Picks in Retail

The Buckle (NYSE:BKE) delivered a positive earnings surprise of 12.8% in the last reported quarter. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chico's FAS (NYSE:CHS) has an expected long-term earnings growth rate of 15% and a Zacks Rank #2 (Buy).

The Gap (NYSE:GPS) , also a Zacks Rank #2 stock, has a long-term earnings growth rate of 9%.

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