Big Lots Dives 11% On Signs Of 4Q Sales Moderation; Street Sees 44% Upside

Big Lots shares plummeted 11.1% on Dec. 4 even as the retailer delivered better-than-anticipated results for the third quarter of fiscal 2020, ended Oct. 31. Investors seemed concerned about management’s comments suggesting sales are poised to moderate in the fourth quarter.

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Big Lots’ (BIG) 3Q sales grew 18% year-over-year to $1.38 billion, ahead of analysts’ expectations of $1.35 billion. The company’s comparable sales rose 17.8% with strong growth across all categories. Big Lots flipped to an adjusted profit of $0.76 per share in 3Q from an adjusted loss per share of $0.18 during the same period last year. Analysts had forecasted EPS of $0.66.

The company attributed its earnings growth to “strongest ever third quarter sales comp” and tight expense controls. To improve its sales, the company continued the rollout of its Operation North Star strategies, including the reconfiguration of its food and consumables categories and expanded the online merchandise offerings. In addition, Big Lots experienced over 50% growth in its 3Q online traffic.

The company did not provide any specific guidance for the fourth quarter but CEO Bruce Thorn stated “Finally, this year’s holiday season is certainly unique, and our strategic decision to plan for early holiday shopping has paid off. Although we expect business to moderate given the elongated season, we are pleased with the strong start we have made to the fourth quarter.” (See BIG stock analysis on TipRanks)

Big Lots shares have already surged 63.5% year-to-date. Looking ahead, the average price target of $67.83 implies upside potential of another 44.4% over the coming year. The Street is cautiously optimistic on the stock, with a Moderate Buy analyst consensus based on 3 Buys and 3 Holds.

In October, Loop Capital analyst Anthony Chukumba increased the stock’s price target to $65 from $60 and reiterated a Buy rating. The analyst said that he was optimistic about the company’s improving fundamentals and a strong balance sheet. He also stated that Big Lots’ valuation could attract the attention of private equity investors, adding that a leveraged buyout at a “significant premium” to current levels would generate returns “comfortably above financial sponsors’ targeted levels”.