Closeout stores run into trouble
Big Lots and Family Dollar announce some unexpected bad news.
Closeout stores are finding it difficult to compete in today's market.
Big Lots (BIG) disappointed analysts with measly numbers, while Family Dollar Stores (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 chains targeting lower-income shoppers are left to flail.
Tuesday morning, analysts lowered estimates, changed price targets and downgraded Big Lots shares after its dismal earnings pre-announcement. Many zeroed in on same-store sales estimates, expecting them to come in slightly negative.
Same-store sales began to slow in mid-March and further softened throughout April, wrote analysts with Deutsche Bank after downgrading the stock to "hold" from "buy" and lowering their price target to $34 from $48. "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," they added.
Unfortunately, the indications of trouble did not stop there. Big Lots was set to attend a competitor's conference on April 25, but backed out following the pre-announcement.
Big Lots is getting whacked in pricier categories, such as electronics. The company did, however, perform decently in the lawn and garden categories, which indicates that the summery weather has impacted consumer purchases.
With so many different types of merchandising to offer customers, closeout 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.
Family Dollar is currently dealing with a departure that has rocked its sturdy foundation. Vice Chair Dorlisa Flur is leaving the company to pursue other interests. Flur was seen as a vital part of the company, well-versed in the business and its strategy.
While her departure is not detrimental to Family Dollar, the move did trigger comments from analysts curious about what direction the company heads next. Her responsibilities are being absorbed by CEO Howard Levine and chief operating officer Michael Bloom.
"Her expertise and experience will be missed," Citi said in a research report Tuesday. "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." The transformation will improve loyalty and traffic, and eventually drive sales growth, the analysts added.
Judging by the unexpected quandaries Family Dollar and Big Lots find themselves in, it is tough to say whether the companies will improve this year. For now, it appears that the low-cost retail industry is left to bank on good weather and loyal customers.
Big Lots shares closed Tuesday at $34.71, down 24% for the day, while Family Dollar fell nearly 3% to close at $66.11.
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Big Lots at one time did have good stuff and cheap prices.... I got fuel injector cleaner there all the time for $1.00.... You cant get good gas anymore even at $ 4.00...... Big Lots got a new president prices went up... The same cleaner now is 1.99... the same price at wal mart... If I was going to pay that I'd get it there.... Now I get it at the Dollar tree for $1.00... Big Lots has lost sight of what made it what it was.... descent stuff at a cheap price... now its just over priced.....
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