Big 5 Sporting Goods Corporation (NASDAQ:BGFV) has been losing luster due to dismal sales trend witnessed in the past few quarters. The company’s disappointing preliminary sales results for the fourth quarter and the lowered earnings view for the quarter and full-year 2017 have further hurt investor sentiments. However, the company’s store penetration strategies, impressive growth plans and financial strength bode well.
Shares of Big 5 Sporting have declined 12.5% in the past three months, underperforming the industry’s growth of 17.3%. Let’s analyze the pros and cons of this Zacks Rank #3 (Hold) company.
What’s Hindering the Stock?
Top-Line in Distress
Big 5 Sporting recently reported its preliminary sales numbers for the fourth quarter and 2017, which lagged estimates and dipped year over year. Unfavorable December sales due to nearly 50% decline in core winter product categories owing to warm and dry weather conditions in most markets, primarily hurt top lines. Additionally, the company continued to witness awfully soft sales for firearm-related products. Weak sales in the aforementioned categories significantly hurt customer traffic across the company’s store fleet, which weighed on comparable store sales (comps) and merchandise margins.
According to Big 5 Sporting, the dismal winter weather conditions have continued into the first quarter of 2018, thereby making comparisons from the prior-year period very tough. Notably, the company has been displaying very strong top-line growth during this period since the past few quarters. Looking back, the company reported comps growth in the low-double digit or high-single digit range for the January in each of the past three years.
Soft Outlook
Big 5 Sporting lowered its earnings guidance for both the fourth-quarter and full-year 2017. The company now anticipates reporting loss in the range of 8-13 cents per share in the fourth quarter, significantly below the previously forecasted earnings of 16-28 cents per share. For 2017, the company anticipates earnings in the band of 52-57 cents per share compared with 77 cents per share in 2016. The company’s guidance for the quarter and 2017 excludes charges related to the recent tax legislation and potential asset impairment.
Is Big 5 Poised to Gain From Growth Strategies?
Sturdy Growth Initiatives
Big 5 Sporting leverages an extensive network of stores to effectively penetrate into its target markets, directed toward generating healthy sales and capturing market share. In fact, the company has been focusing on expanding its store base and introducing technological advancements to enhance services for its patrons. As part of this strategy, Big 5 Sporting intends to open three new stores in the fourth quarter, resulting in roughly six new stores in 2017. We believe that these moves will place it well for future growth.
Efficient Merchandising Strategies
Big 5 Sporting’s unique strategy of offering exclusive branded merchandise from leading manufacturers provides it with a competitive edge over its rivals in a cut-throat specialty retailing industry.
Furthermore, the company leverages its strong vendor relationships to source overstock and closeout merchandise at substantial discounts. This helps it in achieving the dual objectives of boosting gross margin while offering compelling value to customers. Management expects merchandise margins to continue gaining from the closure of rival firms.
To Conclude
Though Big 5 Sporting’s soft sales trend and bleak outlook remain concerns, its growth strategies indicate that the company is poised to succeed. Additionally, the company’s solid financials underscore strength in its operations and augur well for its future.
Do Retail-Miscellaneous Stocks Grab Your Attention? Check These
Investors interested may consider Five Below Inc. (NASDAQ:FIVE) , Hibbett Sports Inc. (NASDAQ:HIBB) and KAR Auction Services Inc. (NYSE:KAR) . While Five Below and Hibbett flaunt a Zacks Rank #1 (Strong Buy), KAR Auction carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Five Below Sports delivered an average positive earnings surprise of 15.5% in the trailing four quarters. It has a long-term earnings growth rate of 28.7%.
Hibbett pulled off an average positive earnings surprise of 25.5% in the trailing four quarters. In addition, it has a long-term earnings growth rate of 2.2%.
KAR Auction delivered an average positive earnings surprise of 7.2% in the trailing four quarters. It has a long-term earnings growth rate of 13.4%.
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Big 5 Sporting Goods Corporation (BGFV): Free Stock Analysis Report
Hibbett Sports, Inc. (HIBB): Free Stock Analysis Report
KAR Auction Services, Inc (KAR): Free Stock Analysis Report
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