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Navigating Macro Headwinds: Big Lots’ Future Outlook

Big Lots Downgraded by Piper Sandler Amid Macro Headwinds

Big Lots, the famous American discount retailer, recently faced a downgrade from investment bank Piper Sandler as the company continues to experience macro headwinds. These macro headwinds, along with a sluggish performance in the second quarter, led to Piper Sandler lowering its share-price target and 2022 earnings per share estimates for the company.

The Reason for the Downgrade

What led to the downgrade? According to Piper Sandler, the trifecta of macro headwinds is impacting Big Lots’ fundamentals in the first half of 2022.

The first macro headwind is the expected ending of stimulus check tailwinds, which had provided a temporary boost to consumer spending during the pandemic. The second is the continuously rising ocean freight rates, which make imports more expensive for retailers like Big Lots.

Lastly, the retail industry is currently experiencing wage pressure due to labour shortages. All three factors combined could lead to reduced profitability for Big Lots in the next few months.

Big Lots Recent Financial Performance

Big Lots’ recent financial performance is also a telling sign of the impact of these macro headwinds. The company missed expectations in the second quarter, reporting lower profits and revenue due to supply chain and freight headwinds.

The CEO acknowledged the challenges the company is facing, citing the fluid situation as an ongoing issue and emphasizing the importance of remaining agile to adapt and overcome the challenges. Despite these challenges, the market remains optimistic that the challenges are transitory.

The investment research firm CFRA Research has maintained a Buy rating for Big Lots, based on the belief that the headwinds that the company is currently facing will subside. Analysts at the firm believe that the supply chain and freight headwinds that negatively impacted Big Lots’ performance will eventually ease up.

Concluding Thoughts

Overall, the current macroeconomic conditions are presenting significant challenges to the retail industry, and Big Lots is no exception. Nonetheless, investors remain optimistic about the company’s future.

Big Lots has maintained its strong market position by providing its customers with affordable and quality products that can drive sales even during challenging times. While the downsides are real, Big Lots has demonstrated resilience and agility in the past, traits that should help it stay on track for the future.

Outlook for Big Lots Amid Macro Headwinds and Risks

Despite recent challenges and a downgrade by Piper Sandler due to expected macro headwinds, the future outlook for Big Lots remains relatively positive. While the company faces temporary obstacles that could hinder its profitability, there are several factors fueling optimism.

Macro Headwinds Expected to Overshadow Near-Term Improvement

Big Lots’ second-quarter earnings report indicated growth in sales across both online and conventional channels. The company also noted improved financial margins due to its recent rebalancing of inventory and pricing strategies.

However, the current macro headwinds, including the expected end of stimulus check tailwinds, rising ocean freight rates, and the retail industry’s ongoing wage pressures, are expected to have a detrimental impact on Big Lots’ profitability, overshadowing any near-term improvements in its financial margins. Upside Potential Due to E-commerce Investments, Store Growth Runway, and Product Innovation

Despite the headwinds, CFRA Research sees significant upside potential for Big Lots.

The investment research company is optimistic about Big Lots’ recent investments in e-commerce and technology, expecting it to drive future growth for the company. Big Lots has also planned to expand its product offerings and increase its store count by opening new locations, presenting significant growth potential in the years to come.

Additionally, Big Lots has shifted its strategy to focus more on home furnishings and seasonal products, allowing it to differentiate itself from its competitors.

Downside Risks

Despite these positive developments, there remain several downside risks for Big Lots. The first major risk facing the company is supply chain bottlenecks.

Shipping delays and product shortages could impact Big Lots’ supply chain, leading to reduced profits and negative customer experiences. Big Lots, like many other retailers, has also been impacted by a surge in ocean freight expenses, which can increase the costs of importing products.

Another significant risk facing Big Lots is ongoing labor challenges. The shortage of available workers has led to increased competition for labour, resulting in wage increases in the retail industry.

This pressure has significantly increased labor costs for retailers like Big Lots. Lastly, Big Lots faces significant competition from other discount retailers and online marketplaces.

Large online platforms like Amazon have significantly disrupted the retail industry and have the potential to erode a portion of Big Lots’ market share.

Ending Thoughts

In conclusion, while Big Lots is not immune to the challenges facing the retail industry, the company is well-positioned for growth in the years to come. Despite the expected headwinds in the coming months, the company has continued to invest in its e-commerce capabilities, expand its store count, and improve its product offering.

The risks facing Big Lots, such as supply chain bottlenecks, labor shortages, and competition, nevertheless remain a significant concern. Retailers that fail to adapt and overcome these challenges may struggle to remain competitive in the expanding e-commerce market.

In summary, Big Lots is facing challenges due to macro headwinds like rising ocean freight rates, labor shortages, and the expected end of stimulus check tailwinds. These factors could overshadow any near-term improvements in its financial margins, according to Piper Sandler.

However, investment research firm CFRA Research sees significant upside potential for Big Lots, given its investments in e-commerce and technology, store growth runway, and product innovation. Nevertheless, several risks may impact Big Lots’ future profitability, including supply chain bottlenecks, labor challenges, and competition.

As retail continues to evolve and adapt to the changing market, companies like Big Lots must remain agile to remain competitive in the retail industry.

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