Big 5 (BGFV) Falls 8% Despite Narrower-Than-Expected Q4 Loss

Big 5 Sporting Goods Corporation (NASDAQ:BGFV) posted narrower-than-expected loss in the fourth quarter. However, sales missed the Zacks Consensus Estimate for the third straight quarter. Moreover, results declined year over year. Also, management issued weak guidance for the first quarter of 2018.

Consequently, shares of this sporting goods retailer fell 7.6% in the after-hours trading. In the past three months, the stock has lost 19.1% wider than the industry’s decline of 2.4%.

Q4 Numbers

Big 5 Sporting incurred an adjusted loss of 10 cents per share, narrower than the Zacks Consensus Estimate loss of 11 cents. The reported figure compares unfavorably with adjusted earnings of 33 cents per share recorded in the prior-ago quarter. Lower sales and weak margins negatively impacted the bottom line.

Including one-time items, loss per share came in at 62 cents versus earnings of 35 cents per share in the year-ago quarter.

Net sales dipped 8.8% to $242.9 million, missing the Zacks Consensus Estimate of $251 million. The decline can be mainly attributed to an extremely challenging performance in December. Sales in December were largely hurt by nearly 50% decrease in core winter product categories due to warmer than normal and dry weather conditions in most of its markets. Lower demand for firearm-related products also hurt the quarterly sales.

Furthermore, comparable store sales (comps) dropped 9.4% against an increase of 3.1% in the year-ago period. Comps declined in all three months of the quarter, with greatest decline witnessed in December. Month-wise, comps dipped in the low-mid single digit range in October, followed by a low-single digit decline in November, where positive comps during the Black Friday weekend aided performance. In December, comps declined in the low-double digit range due to the aforementioned weakness in winter and firearm related products.

On a categorical basis, the company witnessed comps decline in the low-double digit range for apparel, high single-digit range for hardgoods and in mid-single digit range for footwear.

Costs & Margins

Gross profit came in at $72.9 million, down 16.5% from the prior-year quarter. Further, gross margin contracted 280 basis points (bps) to 30% in the quarter due to 126 bps decrease in merchandise margins coupled with higher store occupancy and distribution expenses, as a percentage of net sales.

Selling and administrative expenses, as a percentage of sales, expanded 510 bps to 33.3%. Also, total selling and administrative expenses were up $5.6 million to $80.8 million, courtesy of increased employee labor and benefit-related costs along with non-cash impairment charges.

Consequently, the company incurred operating loss of $7.9 million compared to operating profit of $12.2 million reported in the year-ago quarter. Also, as a percentage of sales, it contracted 130 bps to 3.3%.

Financial Position

Big 5 Sporting had cash of $7.2 million, long-term debt of $45 million and total stockholders’ equity of $187.1 million as of Dec 31, 2017.

Management incurred capital expenditures of $16.5 million in 2017. For 2018, it expects to incur capital expenditures in the $18-$22 million range.

Dividend & Share Repurchase

Big 5 Sporting remains committed to returning cash to shareholders by paying dividends and share repurchases. Apparently, management announced a quarterly cash dividend of 15 cents per share, payable on Mar 23 to shareholders on record as of Mar 9, 2018.

In the fourth quarter, the company bought back 118,609 shares for about $0.8 million. In 2017, it repurchased 795,718 shares for nearly $7.7 million.

As of Dec 31, 2017, the company had about $15.7 million remaining to be repurchased under its $25 million share buyback program.

Store Update

During the reported quarter, Big 5 Sporting inaugurated three outlets that included a relocated store. As of Dec 31, 2017, Big 5 Sporting had 435 stores.

Further, it expects to introduce nearly eight stores with the closure of three stores in 2018.

Guidance

Unfavorable weather conditions continued to hurt winter product sales in first-quarter 2018, especially in January as comps declined in the high teens. However, sales trend improved in February largely owing to non-winter products, which is likely to provide some cushion.

Management issued guidance for the first quarter of 2018. The company now projects comps to decline in the high-single digits. Further, first-quarter loss per share is anticipated in the band of 6-14 cents versus earnings of 24 cents in the first quarter of 2017.

This guidance includes an estimated adverse impact from calendar shift of the Easter holiday into first-quarter 2018 compared with the year-ago quarter.

Big 5 Sporting carries a Zacks Rank #4 (Sell).

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