Big Lots' outlook cut comes at a time when more U.S. shoppers swapped discounters for department stores and clothing shops on the Black Friday weekend -- the traditional start of the holiday shopping season.
There's a lack of confidence in its fourth-quarter guidance considering the challenging competitive environment, Wedbush Securities analyst Joan Storms said.
The Columbus, Ohio-based company, which competes with larger firms such as Dollar General Corp and Wal-Mart Stores Inc , has been hurt by aggressive discounting and promotions by rivals.
Additionally, competition has intensified in the toys category, which contributes a sizeable amount to Big Lots' fourth-quarter sales, as consumers spend more on Christmas gifts.
In the past few months, Toys R Us Inc has announced plans to open 600 temporary stores for the U.S. holiday shopping season and Wal-Mart has given discounts on toys.
Big Lots, which stocks its stores with merchandise that has been overproduced, discontinued or rejected by other retailers, expects fourth-quarter comparable-store sales in a range of flat to 2 percent growth.
Big Lots' outlook is in contrast to the November sales posted by U.S. retailers -- the best in four years, helped in part by Black Friday sales.
The National Retail Federation has forecast a gain of 2.3 percent in retail sales for the November-December holiday period, excluding online sales.
Shares of the company, which have risen 7 percent this year, were down 3 percent at $30.16 on Friday morning on the New York Stock Exchange.
(Reporting by Mihir Dalal in Bangalore; Editing by Prem Udayabhanu, Editing by Roshni Menon)