Big Lots - Fundamental Investment Case

Big Lots, Inc. (“BIG”) is a community retailer operating in the United States. Notably, management categorizes the company as a Discount Retailer. Big Lots was incorporated in Ohio in May 2001 and was the surviving entity in a merger with Consolidated Stores Corporation.

Qualitative Concerns
• Big Lots faces increasing competition from different  competitors in each of its 7 merchandise categories.
• The furniture space is being penetrated by online  companies such as Amazon and Wayfair that offer a  compelling alternative to brick and mortar stores.
• Discount grocers continue to wage an intense price  war in the food category and BIG has been unable  to successfully compete thus far.
• Dollar stores and large retailers compete with Big  Lots in all categories and are pushing huge discounts  during the holidays.

Fundamental Concerns
• Net sales and comparable store sales remain weak  despite new growth initiatives.
• The  few merchandise  categories  with  positive comps, Furniture, Seasonal  and Soft Home, are  experiencing increased levels of competition.
• Gross and operating margins are showing weakness  as transportation and pay-roll related costs grow.
• Inventory levels appear elevated and may be cause  for concern should it go unchecked.
• Insiders have been selling and analyst estimates do  not appear to properly account for present risks.