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Big Lots Cut to Neutral as Piper Sandler Eyes Freight, Wage Costs

A 'trifecta of macro headwinds' will hurt Big Lots' 'fundamentals through the first half,' Piper Sandler says.

Big Lots  (BIG) - Get Big Lots, Inc. Report shares fell Tuesday after Piper Sandler downgraded the discount retailer to neutral from overweight based on fundamentals.

Piper Sandler analyst Peter Keith lowered his share-price target to $50 from $60. The Columbus, Ohio, company's stock recently traded at $45.20, down 4.9%.

“We see a trifecta of macro headwinds impacting fundamentals through the first half of 2022,” he wrote in a commentary.

These include:

1. The end of two years of “stimulus check tailwinds” in next year’s first half.

2. “Ocean freight rates continue to intensify to all-time highs, and are likely a gross-margin drag through the first half of 2022.

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3. “Retail industry wage pressure seems unlikely to materially abate any time soon.”

Further, “while we believe BIG has several emerging sales/margin drivers that should benefit fundamentals longer-term, near-term macro headwinds are likely to overshadow underlying improvement,” Keith said.

“We are lowering our 2022 earnings per share estimate from $6.01 to $5.52 (vs. consensus of $6.13). We also lower our multiple assumption from 10 times to 9 times, based on our reduced earnings outlook.”

Last month, Big Lots missed Wall Street estimates on fiscal second quarter profit and revenue, due to continued supply chain and freight headwinds.

For the quarter ended July 31, the big-box retailer posted earnings of $37.7 million, or $1.09 a share, down from $452 million, or $11.29 a share, in the year-earlier quarter.

Revenue declined to $1.46 billion from $1.64 billion a year earlier. Comparable sales declined 13%, partially reversing the 31% increase from a year ago.