Big 5 Sporting (BGFV) Falls On Q2 Earnings & Sales Miss (Revised)

Big 5 Sporting Goods Corp. (NASDAQ:BGFV) has plunged 14.6% since it came out with second-quarter 2017 results on Aug 1. Both the top and the bottom lines lagged our estimates. Investors’ sentiments were dampened further by management’s soft comps projection for the third quarter.

We also note that this Zacks Rank #5 (Strong Sell) stock has slumped 46.1% so far this year, substantially underperforming the industry’s 9.8% decline.

Q2 Numbers

Big 5 Sporting reported adjusted earnings of 13 cents per share, up 18.2% from 11 cents earned in the prior-year quarter. However, the bottom line missed the Zacks Consensus Estimate of 19 cents.

Net sales rose nearly 1% to $243.7 million but lagged the Zacks Consensus Estimate of $251.8 million. Sales in the quarter gained from a 0.8% increase in comparable store sales (comps) due to the closure of several rival stores last year. However, the lag can be attributed to diminished demand for some hardgoods product categories, mainly linked to firearms, camping and water sports. Additionally, top-line results were hurt by the calendar shift of Easter and Fourth of July holidays, when the company’s stores remain closed, into the second quarter this year compared with the first quarter in the prior-year.

While Big 5 Sporting started off strong with low mid-single digit comps increase in April and May, growth was offset by the low-single digit decline witnessed in June driven by soft sales of some outdoor product categories including firearms, camping and water sports. Moreover, cycling of benefits from the increased sales witnessed last year owing to closure of rival stores, impacted results.

Looking at product categories, the company delivered comps growth for its apparel and footwear categories, while the hardgoods category remained soft posting a low-single digit decline.

Costs & Margins

Gross profit came in at $79.3 million, up 3.9% from the prior-year quarter. Moreover, gross profit margin expanded 90 basis points (bps) to 32.5% in second-quarter 2017. Gross margin growth was driven by a 37 bps improvement in merchandise margins and lower distribution costs, as a percentage of sales, ensuing from higher costs capitalized into inventory.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, rose 50 bps to 30.4%. On a dollar basis, SG&A expenses increased about 2.6% to $74.2 million, due to higher employee labor expense as well as information technology and services related costs.

Consequently, the company’s operating profit of $5.1 million increased 27.5% from prior-year quarter. Operating margin expanded 40 bps to 2.1%.

Financial Position

Big 5 Sporting had cash of $6.6 million, long-term debt of $47.9 million, and total shareholders’ equity of $206.8 million as of Jul 2, 2017.

Dividend & Share Repurchase

Big 5 Sporting remains committed to returning cash to shareholders by paying dividends and share repurchases. Concurrent to the earnings release, management announced a quarterly cash dividend of 15 cents per share, payable on Sep 15 to shareholders on record as of Sep 1.

In the second quarter, the company bought back 6,400 shares for about $0.1 million. Further, the company has repurchased 373,847 shares for nearly $4.3 million since the start of third quarter through Jul 31, 2017.

As of Jul 31, the company had about $19 million remaining to be repurchased under its $25 million share buyback program.

Store Update

During the quarter, Big 5 Sporting opened two stores. The company ended second-quarter 2017 with 433 stores.

Further, in third-quarter 2017, the company plans to close one store. In fiscal 2017, Big 5 Sporting expects to open roughly six new stores, while closing down three.

Outlook

In the third quarter, Big 5 Sporting expects sales comparisons to remain tough due to the cycling of benefits from increased sales witnessed in the prior-year quarter related to the closure of rival stores. Further, the company expects the retail environment to remain challenging. Going forward, it remains focused on maintaining market share growth from last year. Further, management believes that its inventory position is apt for the rest of summer and the back to school season.

For third-quarter 2017, the company anticipates comps to decline in the low single-digit range. Further, it envisions earnings in the range of 22–32 cents per share compared with earnings of 38 cents in the prior-year quarter. The company expects results for the third quarter to include a slight benefit due to the calendar shift of the Fourth of July holiday.

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(We are reissuing this article to correct a mistake. The original article, issued on Aug 2, 2017, should no longer be relied upon.)