Big Lots (BIG) is down over 20% after reporting third-quarter earnings.

The company lost $0.16 a share versus $0.06 a share in the prior year. Sales were up 3.6%, in line with expectations, but some unusually high expenses were enough for earnings to disappoint meaningfully in a quarter which is the company’s slowest seasonally.

However, what has the market most concerned is very soft fourth-quarter guidance of $2.20 to $2.40 per share, compared to expectations of $2.95 per share, with comparable store sales flat versus expectations of 2% to 4% per share. In order of importance, management gave three reasons for such a drastic shortfall.

First, gross margins and cash flow will be hurt by the tariffs on Chinese goods. The company purchased a lot of inventory in advance in preparation for the Jan. 1 tariffs, and will need to take markdowns on existing inventory so this inventory can be displayed in stores. In addition, November sales were disappointing. Although there has been a significant improvement so far in December, it will not be enough to make up for the slow start to the quarter to meet prior expectations. Finally, the company continues to see higher expenses, especially due to increased freight costs and investments in the company’s new stores, which continue to do very well.

Management was vague about guidance for 2018, which also contributed to the weakness in the shares. New CEO Bruce Thorn said the higher expenses should continue next year, although freight expense will likely increase at a slowed pace. Investments in new format stores could increase, given their success, with comparable sales up higher by single to low double-digit percentages. However, given that 2018 results were hurt by the severe winter weather, which forced severe markdowns due to slow spring sales, and the tariff impact of the current quarter, I believe EPS (earnings per share) next year should improve from the $3.60 this year, given a sound economy.

The turnaround at BIG is taking longer than I expected. However, BIG is a debt-free company selling at less than 9X forward EPS, is seeing strong results at its newer stores and faces very easy earnings comparisons next year. The stock has always bounced following an overreaction to earnings, and I believe it will do so again here. My new buy under price for BIG is $32. My target is $42.