BIG - Big Lots: A Tradable Low But Not A Value Stock (Technical Analysis)

• Retailers report second-quarter results over the coming weeks amid the back-to-school shopping season.
• One company catering to low-end consumers is struggling with its stock down more than 70%.
• Big Lots features a highly uncertain future as shares struggle to find support.

Retail earnings season has kicked off. Starbucks (SBUX) reported its Q2 results and Costco (COST) issued its July same-store sales data. Both were actually somewhat encouraging. But more reports roll in starting August 16 when Walmart (WMT) and Home Depot (HD) report, according to Bank of America Global Research. We will get a fresh look at consumer spending on essentials and discretionary items over the coming weeks.

Retails Ringing The Register: Q2 Profit Reports Due Out

One struggling discount retailer, catering to the low-end consumer, hoping to bounce back during this back-to-school shopping season is Big Lots, Inc (BIG).

According to BofA, BIG is a discount retailer with roughly 1,400 stores across the US with a mix of urban, suburban, and rural locations. Furniture (23%), Seasonal (14%), and Soft Home (15%) collectively account for over half of sales, Food (16%) and Consumables (16%) account for over 30% of sales, and Hard Home (8%) and Electronics, Toys & Accessories (8%) account for the remainder. BIG's target customer is female, with an average age of 42 and a household income of $54k.

The Ohio-based $609 million market cap Consumer Discretionary stock pays a hefty 5.7% dividend yield and features a massive 37% short interest. It’s certainly a beaten-down name with negative momentum.

BofA sees fits and starts with BIG earnings per share. While year’s profits should be robust, 2023 could be a major struggle. Profit growth is seen as declining in 2025 after a quick upturn in 2024. Hence, the stock’s currently low P/E ratio does not indicate value. The upshot is that the firm could generate big free cash flow starting in 2024, but that is a long way out.

BIG: Earnings, Valuation, Dividend Forecasts

BIG has an unconfirmed Q2 earnings date of August 26 BMO, according to Wall Street Horizon.

BIG Corporate Event Calendar: Q2 (Negative) Earnings On Tap

BIG has missed earnings estimates in three of the past four quarters, according to data from ORATS. Traders expect an 11% earnings-related share price move based on the at-the-money straddle using the nearest-dated options expiration. It could be an ugly loss as the EPS estimate is currently $-2.35.

BIG Earnings Outlook: Volatility Expected

The Technical Take

BIG is currently in a more than 70% drawdown off its 2021 peak as the retailer struggles to stay afloat. There could be a tradeable low in place notched last month just above $18, but the trend is clearly lower.

I see resistance in the $25 to $26 range – notice how that level was support in early 2014 and 2019. Also, there is a significant amount of volume beginning at that area, using the ‘volume by price’ indicator illustrated on the left. A swing long here could make sense, but profits should be taken in the mid-$20s and a stop is warranted below $18.

Longer-term, a bearish head and shoulders topping pattern is in play that targets a low toward the GFC and 2020 lows just above $10.

BIG: A Tradable Low, But Resistance Near $25

The Bottom Line

BIG does not look like a compelling long-term value here given its EPS volatility. A massive short interest could send shares to near $25 in the immediate future, but I would be a seller on any rallies. Moreover, a break of $18 could bring BIG down to its GFC and 2020 lows in the low $10s.

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