Close-out retailer Big Lots Inc posted a lower-than expected quarterly profit, and the company cut its outlook for the crucial holiday quarter, in the face of strong competition from rivals, sending its shares down 5 percent in pre-market trade.

Big Lots, which stocks its stores with merchandise that has been overproduced, discontinued or rejected by other retailers, expects fourth quarter earnings from continuing operations of $1.36-$1.42 a share, compared with its prior outlook of $1.41-$1.45 a share.

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.

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.

For the third quarter ended October 30, the company posted net income of 23 cents a share, missing analysts' average estimate of 24 cents a share, according to Thomson Reuters I/B/E/S.

Investments made to open new stores, refresh existing stores, and prepare our business for the all-important holiday season along with softer third-quarter sales results caused our expenses to grow at a faster rate than sales, the company said in a statement.

Net sales rose 2 percent to $1.06 billion.

Shares of the company, which have risen 7 percent this year, were down 5 percent at $29.54 before the bell. They closed at $31.09 on Thursday on the New York Stock Exchange.

(Reporting by Mihir Dalal in Bangalore; Editing by Prem Udayabhanu, Editing by Roshni Menon)