Big Lots Underwhelms in Pre-Announcement, Family Dollar Loses Vice Chair

Close-out stores are finding it difficult to compete in today's market, as Big Lots (NYSE: BIG) deflated analyst's expectations with measly numbers and Family Dollar Stores (NYSE: FDO) announced that its vice chair recently resigned. In a time of uncertainty, the retail industry seems to be staying afloat in unlikely sectors, (such as luxury brands), while lower income-based retailers are left to flail.This morning, BIG saw lowered estimates, price target changes and a downgrade due to its dismal pre-announced earnings report. Same store sales are mostly to blame for the tweaks, as the first quarter SSS is expected to come in slightly negative. "On cadence, SSS were on plan throughout the first six weeks of the quarter (say up 3%), but began to slow in mid-March, with trends further softening throughout April," Deutsche Bank commented today after downgrading the stock from Buy to Hold and lowering PT from $48 to $34. "While we walked away concerned following our management meetings last month in Boston, the magnitude of the shortfall (given the compare) and the category of weakness (i.e. consumables) raises structural issues."Unfortunately, the indications of trouble did not stop there. Big Lots was set to attend a competitor's conference on April 25, but, following the pre-announcement, the company has since backed out.It appears that the categories BIG is suffering from are those of a higher price point, such as electronics. The company did, however, perform decently in the lawn and garden categories, which indicates that the summery weather has made an impact on consumer purchases. With so many different types of merchandising to offer its customers, close-out and lower-priced retail stores are positioned to meet performance standards, no matter the climate. So what is the problem? Turns out, it's not always product likeability that prompts skepticism from investors and consumers.FDO is currently dealing with a departure that has rocked its sturdy foundation. It was announced yesterday that Family Dollar's Vice Chair, Dorlisa Flur, will be leaving the company behind to pursue other interests. Flur was seen as a vital part of the company, as she was well-versed in the business and embodied a strategic mindset.While her parting is not detrimental to FDO, Flur's absence has caused comments to float around by analysts who are curious to see what direction the company will head towards next, as her responsibilities are being absorbed by CEO Howard Levine and COO Michael Bloom. "Her expertise and experience will be missed. However, we have confidence in COO Michael Bloom's ability to execute the company's aggressive plan to expand its current assortment, invest in new categories, and grow/renovate its store base. We believe that this transformation will improve customer loyalty, increase frequency, and drive topline growth over time," Citi said in a research report yesterday. Judging by the unexpected quandaries FDO and BIG have been seeing in recent times, it is tough to say whether or not the companies will improve throughout 2012. For now, it appears that the low-cost retail industry is left to bank on good weather and loyal customers. BIG is currently trading at $34.88, down -7.68%, while FDO is trading at $66.34, up +15.05% YTD.