BIG was a darling during COVID, as consumers flush with cash spent heavily at their stores for furniture, household goods, outdoor items etc. However at the end of the COVID boom and the huge drift in sales, comp sales went negative and back to a more normal rate, however Wall Street focused on the negative component. On the most recent earnings call, BIG management denoted they expect same store sales comps to go positive this year, they generated decent free cash flow and margin expansions, but also expect more margin expansions in the coming quarters. The company has also been getting back to its roots as a discount and deep value retailer. They had previously lost their way and become more a traditional retailer where bargains made up about 10% of their product mix, management has repositioned them to where 75% of their products will be bargains or deep value and where they will also be undercutting traditional grocery stores for basic "stock up" food items, cleaning and pet supplies, driving home they are the bargain place for customers to shop. Recently the company also acquired the entire inventory of Hearthsong Toys for $22 million. These are high end active and educational toys for children. They have started rolling them out at their stores this week at at massive discounts to previous retail prices. These will not only further drive traffic to their stores, although the risk is they sell out quickly as retail arbitragers pick them up by the cartload and resell them on $EBAY or $AMZN since their prices and those prices have a large disparity. Regardless though BIG is there to see a return, and that is increased traffic, but also profits from their mark up of this large value buy.
For a company doing $4.5 billion in annual sales and to have a market cap of $125 million seems to be a disconnect. Some of this is due to short sellers/hedge funds that have relentlessly punished the stock price in the same manner $GME and other retailers were punished by them in past circumstances. There are 29 million shares outstanding and 6.6 million are short. Major mutual funds, Fidelity and Vanguard each own over 2 million shares, Charles Schwab owns just under 1M and other funds collectively own about 80% of the outstanding shares, insiders own 6%. This makes a very tight float for the elevated short interest and a short squeeze would just be a bonus. The company repurchased about $600 million of shares many in the 30-50 dollar range. The company has also has $159 million left on share repurchase authorizations which is more than their entire market cap, however they have slowed share repurchases as they navigated a fluid retail environment. BIG also makes a compelling acquisition candidate, Mill Road Capital encouraged them to sell themselves for $55-70 per share in 2022 and believed other retailers would be open to paying that: https://www.cnbc.com/2022/04/02/mill-road-calls-for-a-sale-of-big-lots-heres-what-we-might-learn-from-the-firms-earlier-deals.html
The other deep value investor Michael Burry of the Big Short and early $GME fame also has been purchasing shares recently too: https://www.marketwatch.com/story/big-lots-qurate-up-after-big-short-investor-burry-s-firm-reports-stakes-d2c342c4
The company has been paying down debt and appears to have ample liquidity to navigate a fluid retail environment mentioning on their last earnings call how they have real estate and other assets they could easily tap for $200 million which far exceeds their current cap. The stock also trades well below their tangible book value. It appears there is opportunity in this stock at these levels near 52 week lows.
Disclosure: Long BIG Stock and Long Call Options
