On Friday, Telsey Advisory Group maintained its Market Perform rating and $2.50 price target for Big Lots shares (NYSE: NYSE:BIG). The firm's stance comes as Big Lots navigates a challenging economic landscape, which has particularly affected its core demographic of lower to middle-income consumers. These customers are currently experiencing increased financial pressure, leading to reduced spending on discretionary items, including furniture and home products.
Despite these headwinds, Telsey acknowledges some positive developments within the company, such as improvements in merchandise offerings, inventory management, and cost savings. These improvements are part of Big Lots' strategy that aims to transform the company structurally and restore profitability over the long term.
The analyst from Telsey pointed out that while the company's strategic initiatives are commendable, and there is potential for a turnaround, evidence of business stabilization is needed before considering a rating change. The affirmation of the Market Perform rating reflects a cautious outlook due to the current tough near-term trends affecting the retailer.
The $2.50 price target is derived from applying an estimated enterprise value-to-sales (EV/Sales) multiple of approximately 0.14x to the firm's 2025 sales projection of around $4.4 billion. This valuation reflects Telsey's expectations for the company's performance in the medium term, considering both the challenges and the initiatives undertaken by Big Lots.
In summary, while Big Lots is implementing strategies that may lead to a positive transformation, the immediate macroeconomic pressures and consumer spending patterns have led Telsey to maintain a neutral stance on the company's stock at this time.
In other recent news, Big Lots experienced a reduction in its price target following disappointing first-quarter results in 2024. The company reported an adjusted EPS of ($4.51), falling short of both the analyst's estimate and the FactSet consensus. Big Lots also witnessed a decrease in comparable store sales by 9.9%, a sharper decline than expected. Despite these challenges, the company saw positive developments in the pet and toy segments, showing a positive comparable sales performance in the first quarter.
Big Lots revised its second-quarter guidance downward, anticipating a high single-digit to mid-single-digit percentage decrease in comparable store sales. However, the company observed a sequential improvement in comparable store sales in May and June, with expectations for this trend to continue throughout 2024. Operational initiatives and cost reductions led to improvements in gross margin rate and operating expenses.
The company is enhancing liquidity with a new $200 million term loan facility, expanding vendor relationships for more closeout deals, and improving online presence and store relevance. Big Lots also anticipates Project Springboard to deliver $185 million in cumulative savings by year-end.
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