Shares of Big Lots Inc. are experiencing their worst day in four years, following a warning from Loop Capital advising investors to steer clear of the discount home essentials retailer. Loop Capital cites a “precarious” financial situation and a loss of relevance with consumers as the primary concerns.
The stock (BIG, -3.77%) plummeted 14.7% in premarket trading, putting it on track for the largest single-day selloff since its 19.5% drop on March 18, 2020, shortly after the World Health Organization declared COVID-19 a pandemic.
This significant decline comes despite the company’s announcement that fiscal fourth-quarter same-store sales, gross margin, operating expenses, and inventory were all in line with the guidance provided in late November. Big Lots’ Chief Executive, Bruce Thorn, emphasized that the company generated substantial cash flow during the quarter, which was used to pay down debt on their $900 million asset-based lending facility. Full results will be reported on March 7.
Loop Capital’s Anthony Chukumba has emerged as Wall Street’s biggest bear on Big Lots’ stock, downgrading his rating from hold to sell. He also slashed his price target from $6 to $1. Chukumba’s new target suggests an 81% downside from Friday’s closing price of $5.36, placing it below the stock’s record-low close of $1.20 on Feb. 23, 1990.
Chukumba expressed doubt regarding Big Lots’ ability to regain consumer relevance and mindshare, which he believes is very difficult, if not impossible, based on his extensive experience. He also questioned the company’s decision to return to bargain and treasure hunting as part of its merchandising strategy. Chukumba argues that changes in the competitive landscape over the past decade make this shift questionable.
Concerns regarding Big Lots’ financial situation are also mounting. Recent reports suggest that the company has hired a turnaround consulting firm and is exploring financing options, heightening anxieties further.
Throughout the past six weeks, Big Lots’ stock has plunged 31.2% as part of a continuous losing streak, which is shaping up to be the longest stretch since the seven-week period ending on June 7, 2019. Over the past year, the stock has taken a substantial hit, plummeting 67.3%, while the S&P 500 index has seen a significant rally of 22.9%.
