Big Lots Hammered By Piper Jaffray, Firm Warns Of Uncertainty In 2016

• The share price of Big Lots, Inc. BIG has dipped 18.65 percent over the past one month, opening on December 7 at a low of $39.24.
• Piper Jaffray’s Peter J. Keith has downgraded the rating on the company from Overweight to Neutral, while lowering the price target from $61 to $43.
• Although there continues to be consistent improvement in the company’s stores, Keith expressed concern regarding Big Lots being able to move to positive traction comp in 2016.

Analyst Peter Keith said that the downgrade was also due to the ongoing ecommerce rollout representing “a notable drag on profitability and has execution risk.”

Keith also mentioned that management had “established overly aggressive guidance targets which gives the turnaround a negative slant when these targets aren't met.”

In addition, while the company’s initiatives with the Store Revolution and a private label credit card test continue to be “intriguing,” they are still unproven.

Big Lots has to date invested capex worth $40 million in its ecommerce platform, while building to a run rate of $10 million in expenses to support the platform. The company expects additional expenses in 2016, although it has not quantified the amount.

Keith expressed concern regarding “execution risk on the roll-out and support of e-com,” saying that the ecommerce expenses have been limiting EBIT margin and pressuring the stock valuation.

In addition, with the ongoing changed in Big Lots’ merchant mix towards slower turning items, as well as limited visibility into the store operating initiatives, Keith expressed skepticism regarding the company’s transactional comp turning positive in 2016.

According to the Piper Jaffray report, management and the company’s board need to establish more realistic long term goals.