Big Lots May Grapple With Negative EBITDA And Cash Burn Next Year: Analyst Cautions

Piper Sandler analyst Peter J. Keith reiterated the Underweight rating on Big Lots, Inc. BIG and reduced the price target to $3.50 from $6.00.

The company reported a third-quarter FY23 sales decline of 14.7% year-on-year to $1.027 billion, missing the analyst consensus estimate of $1.03 billion. The decline to last year was driven by a comparable sales decrease of 13.2%.

While comp is trending toward less negative, the analyst still sees comp challenges in 2024 as BIG will still be lapping notable markdown activity from 2023.

Also Read: Big Lots: Uncharted Depths And High Trading Activity — Is A Buy-The-Dip Moment Lurking?

As a result, Keith still sees notable negative EBITDA and cash burn next year.

The analyst notes that BIG is not standing still and working to reduce costs by ~$300 million but is now working to push more into deep value closeout buys.

Keith applauded these efforts but noted that many of the cost savings are operations (gross margin). 

BIG is coming off two years of elevated inventory levels, and the combination of markdowns and lower ocean freight reduced inventory by -12% y/y in Q3. 

For 2024, management would like to take inventory down another 15%-20%. 

However, according to the analyst, BIG's push to increase closeout buys will likely create greater inventory and working capital commitments.

The analyst expects FY23 revenues of $4.725 billion, with EPS of $(11.05) loss.

Read Next: Are Apple & Paramount Teaming Up? Potential Bundle Deal Could Shake Up Streaming Wars

Price Action: BIG shares are trading higher by 19.45% to $6.30 on the last check Friday.

Photo Via Company